For a scholarship to be “qualified,” or tax free, your student must be a candidate for a degree. He or she is also required to only use the funds for tuition, fees, books and supplies. Any amount received for incidental expenses is not a tax free, qualified scholarship. Incidental expenses include room and board, transportation and payments for research.
Fortunately, there are a few tax credits and deductions available to taxpayers while they have students in college. These include:
- American Opportunity Credit: available for the first four years of college
- Lifetime Learning Credit: available if a taxpayer or dependent is taking college classes to improve job skills
- Tuition and fees deduction: allow taxpayers to deduct qualified college expenses for themselves or a dependent
- Student loan interest deduction: allows taxpayers to deduct up to $2,500 per year on federal taxes for interest paid on student loans
- College SAVE plan deduction: allows North Dakota taxpayers to deduct up to $5,000 (up to $10,000 for married couples) of College SAVE plan contributions from their North Dakota state taxable income
Visit with a certified public accountant to learn how these tax credits may impact you.