Many people know of the various federal tax benefits for education, but may be unaware of the benefits at their state level. Taxpayers may qualify for certain available tax deductions, depending on where you live. Tax Manager Bob Cranshaw shares three to keep in mind.
- Student Loan Interest Deduction: If you live in Massachusetts, you may deduct interest paid on qualified undergraduate student loans (not to exceed $2,500). This deduction is not allowed in Rhode Island or Connecticut. [see Line 10 and 12, page 22]
- College Tuition Deduction: for tuition paid to a qualifying 2-4 year college leading to an undergraduate or associate’s degree. It excludes scholarships, grants, and/or financial aid and is limited to 25% of Massachusetts AGI (Adjusted Gross Income). It also excludes room & board, books, supplies, meals, lodging, etc. See [Line 11, page 22] for more details.
- Pre-Paid Tuition or College Savings Plan Deduction:
- For Massachusetts – purchases or contributions made to an account in a pre-paid tuition program or a college savings program. The deduction is capped at $1000 for a single person, married filing separate, or head of household and $2,000 for a married couple filing a joint return [see Line 18]
- For Rhode Island, the deduction is capped at $500 for a single person, married filing separate, or head of household and $1,000 for a married couple filing a joint return (regardless of the number of accounts). [See Page I-3 TUITION SAVINGS PROGRAM – SECTION 529]
- For Connecticut, the contribution deduction is capped at $5000 for a single person, married filing separate, or head of household and $10,000 for a married couple filing a joint return on contributions to CHET (Connecticut Higher Education Trust) accounts.
As you can see, there is quite a range of tax deductions between states on this topic alone. In some cases, pre-planning can provide a significant savings in the long run. For more information about state or federal tax benefits for education, please contact us at 401-831-0200.