College Tax Credits and Divorce

Divorced parents are probably already well aware that the financial piece of planning for college is mystifying at best. With tax season upon us, divorced parents planning to claim one of the available college tax credits– American Opportunity Tax Credit or Lifetime Learning Credit– need to know that the credit is only available to the parent who claims the student as a dependent on their tax return. This is different from the FAFSA, which is completed by the custodial parent.

Keep in mind that both tax credits have income caps: the AOTC (a credit of up to $2,500 per year per student for four years) phases out between $80,000-$90,000 for single filers; the LLC (a credit up to $2,000) phases out between $52,000-$62,000 for single filers. In many cases, only the lower-earning ex-spouse is eligible for one of the credits whereas the higher-earning ex may be taking the dependent deduction, so it may take some calculation to determine the net benefit of shifting the dependent in order to get the tax credit.

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