Tuition, Educational Expenses, and Student Loans

Students paying their way through college and parents footing the bill for a child’s tuition should definitely pay attention to the IRS tax code when preparing their tax returns. As it turns out, there are some surprisingly easy ways to qualify for sizable tax deductions related to education expenses.

One of the biggies is called the American Opportunity Tax Credit, which is a modified version of a tax perk that existed in 2009 and 2010 called the Hope Scholarship Credit. The American Opportunity Tax Credit has been extended through 2017 and is available to a wide demographic of taxpayers and you can claim the credit – which goes as high as $2,500 per student – for four full years of post-secondary education. The credit is available to individuals with modified adjusted gross income of $80,000 or less, or $160,000 or less for married couples filing a joint return.

The American Opportunity Tax Credit helps in other interesting ways, too. Oftentimes a student will have to buy course materials like textbooks and supplies that don’t come from the campus bookstore. That has been a problem in the past since tax breaks generally only covered costs paid straight to the college. Legitimate expenses for course-related books, supplies, and equipment that you may not necessarily pay directly to the educational institution are, however, covered by the American Opportunity Tax Credit. Also be sure to retain copies of receipts for all your education-related expenses throughout the year, to help confirm your eligibility. Check with your tax preparer to see if these kinds of credits apply to you.


The Lifetime Learning Credit

Not everyone who goes to school for continuing education is a traditional student, though, especially these days when many people in the workforce are trying to acquire new marketable skills. For individuals furthering the education on a yearly basis, the Lifetime Learning Credit is especially appropriate for them. Those who qualify for the Lifetime Learning Credit receive a credit of up to $2,000 for qualified education expenses, with no limit on the number of years they can claim the credit. Go to school every year for the rest of your life and enjoy this credit to help you cover those costs of being a lifetime learner.

To be eligible you typically need to meet these requirements:

  • You pay qualified education expenses of higher education
  • You pay the education expenses for an eligible student
  • The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return

If you’re eligible to claim the lifetime learning credit and are also eligible to claim the American Opportunity Tax Credit for the same student in the same year, you can choose to claim either, but not both. Crunch the numbers to see which one saves you the most tax dollars.

Student Loan Deductions

Normally the interest you pay on loans is not tax deductible, unless it is for certain kinds of mortgage loan interest. There is a sweet exception, though, if your modified adjusted gross income is less than $75,000 as a single taxpayer or $150,000 for those who file a joint return.

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A special deduction is allowed for paying interest on a student loan used for higher education. The IRS defines student loan interest as any interest you paid during the year on a qualified student loan – whether those payments made were required or voluntary. The deduction can reduce the amount of your income subject to taxes by up to $2,500.

Certain computer technology purchases have been added to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 Plan. That’s because the Internet has changed the way we learn and computer-related tools may be an important and legitimate component of your education. If you are using a 529 Plan check with the IRS or a tax expert to ensure that you maximize your available savings.

Tuition and Fees Deduction at a Glance

The chart below, provided by the IRS, can help give you a quick snapshot of eligibility for tuition-related tax deductions.

Note: Do not rely on this table alone. Refer to the IRS guidelines for full details.


Question Answer
What is the maximum benefit? You can reduce your income subject to tax by up to $4,000.
What is the limit on modified adjusted gross income (MAGI)? $160,000 if married filing a joint return;
$80,000 if single, head of household, or qualifying widow(er).
Where is the deduction taken? As an adjustment to income on
Form 1040 or Form 1040A.
For whom must the expenses be paid? A student enrolled in an eligible educational institution who is either:
•your spouse, or
•your dependent for whom you claim an exemption.
What tuition and fees are deductible? Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board.
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Source from

There is also a very helpful tool for figuring out if you are eligible for one or more of these education tax credits available for free at the IRS website. It only takes about 10 minutes to provide some answers that will be used to calculate eligibility and you may wind up saving a substantial amount of money on your taxes.

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Mark Holland

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