It's Back to School Time - Is the Tution & Fees Deduction Right For You???

by Steven Sodini 8. September 2011 13:22
This time of year, it’s back to school time for many people.   For those back in college (or other post-secondary school), you may be able to deduct qualified tuition and related expenses that you pay for yourself, your spouse, or a dependent, as a tuition and fees deduction.  This deduction is an “above-the-line” deduction (which means you don’t have to itemize), which can reduce the amount of income subject to tax by up to $4,000 so long as your modified adjusted gross income (MAGI) is not more than $80,000 ($160,000 if filing a joint return).  The deduction is calculated on Form 8917 and any allowable deduction flows to Form 1040, Line 34. Of course, like most deductions, there are usually some limitations, so you’ll have to do some calculations to determine whether your tax benefit would be more from taking the tuition and fees deduction, or from an education credit such as the American Opportunity, Hope or Lifetime Learning credit, since you cannot take both.  In addition, you also cannot claim the tuition and fees deduction if your filing status is married filing separately or if you may be claimed as a dependent on someone else’s return, even if other person does not actually claim that exemption.  Finally, non-resident aliens also cannot claim the deduction.  The deduction must be claimed in the tax year that the expenses are actually paid and the student must be claimed as a dependent in that same tax year. You calculate the deduction based on qualified education expenses you pay for yourself, your spouse, or a dependent. For purposes of the tuition and fees deduction, qualified education expenses are tuition and related expenses required for enrollment or attendance at an eligible educational institution (any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education).  Related expenses are narrowly defined as student-activity fees and expenses for course-related books, supplies, and equipment if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.  Qualified education expenses do not include amounts paid for insurance, medical expenses (including student health fees), sports, transportation, room and board and similar personal, living, or family expenses – even if the payment of these expenses are a condition of enrollment or attendance.  The student must be enrolled in at least one qualified course at an eligible institution to be eligible for the deduction. You can use money that you borrow in order to calculate the deduction, but as expected, you cannot claim a deduction or credit based on expenses paid with tax-free scholarship, fellowship, grant, or education savings account funds such as a Coverdell education savings account, tax-free savings bond interest or employer-provided education assistance. Other restrictions and exceptions may apply so check with the tax professionals at Urish Popeck, to determine if this deduction is right for your tax situation.
Categories: Tax