Tax breaks for college students & parents

April 2, 2012

You can take a tax deduction for college tuition and other mandatory school fees. This is called the Tuition and Fees Deduction, and is reported directly on Form 1040 or Form 1040A. This tuition deduction is temporary: 2011 is scheduled to be the last year that taxpayers can take this deduction.

If you paid college tuition, you might also be eligible for the Lifetime Learning tax credit or the American Opportunity credit. These tax credits have different income ranges than the Tuition & Fees Deduction. My suggestion is to see which tax break you qualify for, and if you qualify for both the deduction and the tax credits, to go with the tax break that provides the largest benefit.

Limits and Income Ranges for the Tuition and Fees Deduction

The maximum amount of the tuition and fees deduction you can claim is $4,000 per year. The deduction is further limited by income ranges:
$4,000 max for income up to $65,000 ($130,000 for joint filers)
$2,000 max for income over $65,000 up to $80,000 ($160,000 for joint filers)
no deduction for income over $80,000 ($160,000 for joint filers).

For the purpose of this deduction, income is measured using adjusted gross income modified to add back certain types of foreign income that are excluded from US income taxes. See the modified AGI section of Publication 970 for more details.

Who is Eligible for the Tuition and Fees Deduction

The deduction is available for any person who paid tuition and other required fees for attending college, university, or other post-secondary school. The deduction is available for parents whose dependents attend college, but only if the parents claim the student as a dependent. The deduction is not available for married couples who file separate tax returns. The tuition deduction is not restricted based on what year of college you are in, or if you are a part-time or full-time student. Taking even once class can qualify you for this deduction.

What Counts as Qualifying Tuition and Fees?

  • Tuition
  • Fees required as a condition for enrollment or attendance

Books, student health fees, and other school related costs are generally do not count as qualifying expenses for the tuition deduction. Schools report qualifying expenses to you and to the IRS using Form 1098-T.

Expanded Definition of Qualifying Expenses for Midwestern Disaster Areas

Students attending college in the Midwestern disaster areas are allowed to include books, supplies, and room and board costs as part of their deduction.

Where to Claim the Tax Deduction

Report the tuition and fees tax deduction using Form 8917 (pdf, 2 pages). The amount of the deduction is also reported on Form 1040 or Form 1040A.

From the IRS

"You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or a dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education."
Source: IRS Publication 970, Tax Benefits for Education, Chapter 6, Tuition and Fees Deduction.

Tax Planning Tips for the Tuition Deduction

  • See which education-related tax breaks you might qualify for based on your income.
  • If you qualify for more than one tax break, calculate your taxes using different scenarios and pick the tax break that will result in the most tax savings.
  • College students who are working and supporting themselves can earn up to $13,500 tax-free for 2011. (Assuming single, not a dependent, and taking the standard deduction plus $4,000 tuition deduction).

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