Sam's parents also could claim the Hope Scholarship Credit for him his first and second years. Taxes Other Reductions of Taxable Income College graduates or their families can deduct student-loan interest payments on the first sixty months of the loan payments. The tax deduction is available even if the taxpayer does not itemize other deductions. The loan does not have to be federally guaranteed or subsidized to be eligible for the deduction, but it must be used to pay education expenses such as tuition, fees, books, and room and board and meet all other requirements. Reimbursement for work-related graduate courses may also be excluded from tax if the course maintains or improves job skills for an individual's current job.
Families can use qualified state-sponsored tuition plans to save for college expenses.
No tax is due until funds are withdrawn. After 1997, families can use these state-sponsored plans to save for tuition and for room and board. Tuition and fees paid with money from a qualified state-sponsored tuition plan are eligible for the Hope and the Lifetime Learning tax credits. Education IRA contributions made in the same year as contributions to a state-sponsored tuition plan are considered to be excess contributions to the Education IRA and are subject to a tax penalty. Click here for for table of Types of Education Expenses.