Live

Watch CBSN Live

Families missing out on college tax breaks

(MoneyWatch) If you have a child in college, don't overlook a great opportunity to get a generous tax credit when you file your federal income taxes next year.

Plenty of Americans are leaving money on the table. According to a 2012 Government Accountability Office report, roughly 1.5 million tax filers in 2009 (the latest available year) did not take advantage of college tax benefits for which they appeared eligible. Roughly 14 percent of 11 million eligible tax filers failed to claim a tax credit or deduction on education expenses.

Major higher-ed tax credit opportunities. Here are the two higher-ed tax credits that you should know about: 

American opportunity tax credit. The "American opportunity tax credit," which is the most popular one, provides a family with a maximum credit of $2,500 for higher education expenses. The credit is available for individuals with a modified gross income of $80,000 or less, or $160,000 or less for married couples filing jointly. This tax credit is scheduled to expire in 2013.

Lifetime Learning Tax Credit. The "lifetime learning tax credit" benefit provides a family with up to a $2,000 tax credit, which equals 20 percent of the first $10,000 paid for tuition and fees. Taxpayers are eligible for this tax credit if their modified adjusted gross income does not exceed $61,000 for a single head of household or $122,000 for a couple filing jointly. 

Qualifying for tax credits

Qualifying for the tax credits can be tricky. For instance, the American opportunity or lifetime learning credits can only be claimed in the same year that a parent takes a 529 college savings plan distribution if the expenses are not used for both benefits. In other words, the government won't allow you to claim a education tax credit for the same expense that you are covering with a tax-free 529 plan withdrawal.

I ran up against that double-dip rule when my husband and I wanted to claim the American opportunity credit during years when we pulled money out of 529 accounts for our children. Luckily, I was able to depend on the advice of our enrolled agent, who has been preparing our tax returns for years, to determine that we were eligible. 

You can learn more about the education tax credits by wading through IRS Publication 970: Tax Benefits for Education. And if you use a tax preparer, be sure to inquire about these benefits.

View CBS News In