Are Post-Secondary Education Expenses Deductible?

 

For tax year 2016, you may be able to claim an education credit or an above-the-line deduction for certain higher education expenses. There are two different education credits. They are called the "American Opportunity Credit" and "Lifetime Leaning Credit." There is also an above-the-line deduction called the "Tuition and Fees Deduction".

You may be able to claim an education credit or tuition and fees deduction for yourself, your spouse, or your dependents. You can EITHER claim ONE of the credits OR the above-the-line tuition and fees deduction for each student, but NOT both the credit and above-the-line deduction for the same student in the same tax year. The amount of the credits and above-the-line deduction is determined by the amount you pay for "qualified educational expenses" for each student and the amount of your modified adjusted gross income (MAGI).

NOTE: Employees who do not qualify for an education credit may be able to claim an employee job expense for job related education expenses as an itemized deduction.

American Opportunity Credit

The American Opportunity Credit can only be claimed for an eligible student (defined below). This student can be yourself, your spouse, or your dependent.

For tax year 2016, the maximum credit amount PER ELIGIBLE STUDENT can be up to $2,500 and up to $1,000 of that credit amount may be refundable. The credit is calculated by taking 100% of the first $2,000 of qualified educational expenses (defined below) and 25% of the next $2,000 of such expenses.

An ELIGIBLE STUDENT must meets ALL of the following requirements:

  • Is enrolled in one of the first four years of post-secondary education,

  • Is enrolled in a program that leads to a degree, certificate, or other recognized education credential,

  • Is taking at least one-half of the normal full-time workload for the course of study for at least one academic period beginning during the calendar year, AND

  • Is free of any felony conviction for possessing or distributing a controlled substance (drugs).

For tax year 2016, the credit is gradually reduced if your modified adjusted gross income (MAGI) exceeds $80,000 ($160,000 if married filing a joint return) and is completely eliminated if your MAGI exceeds $90,000 ($180,000 if married filing a joint return).

This credit CANNOT be claimed if your filing status is "married filing separately," or if you were a nonresident alien for any part of the tax year and do not elect to be treated as a resident alien.

"Qualified Educational Expenses" for the American Opportunity Credit

These are tuition, fees and course materials such as books, equipment and supplies required for enrollment or attendance at an accredited college, university, vocational school, or other post-secondary educational institution that is eligible to participate in the student aid programs administered by the U.S. Department of Education. The course materials are NOT required to be purchased from the educational institution. For example, they may be purchased at an off-campus bookstore or on the Internet.

Qualified expenses may include student activity fees ONLY if they must be paid to the school as a condition of the student's enrollment or attendance. Qualified expenses do NOT include any costs for courses or instruction that involves sports, games, hobbies, or noncredit courses, unless the education is part of the student's degree program.

Qualified expenses do NOT include room and board, insurance, transportation, nonacademic fees or other similar personal, living, or family expenses.

Expenses Paid By A Dependent Or Other Persons

If you claim an exemption on your tax return for an eligible student, treat any expenses paid by the student as if you had paid them. If someone other than you, your spouse or your dependent pays any of the student's qualified expenses directly to the educational institution (for example, a grandparent), the student is considered to have received the payment from the other person and, in turn, paid the institution. You are also able to treat these expenses as if you had paid them if you are able to claim an exemption for the student.

Adjustments to Qualified Educational Expenses

If you pay for higher education expenses with tax-free funds, you CANNOT claim a credit for those amounts. Some examples of tax-free funds are scholarships, Pell Grants, employer-provided education assistance, veterans' education assistance and any other nontaxable payments other than gifts, bequests, or inheritances.

Lifetime Leaning Credit

The Lifetime Learning Credit can only be claimed for an eligible student (defined below). This student can be yourself, your spouse, or your dependent.

For tax year 2016, the maximum credit amount PER TAX RETURN can be up to $2,000. The credit is calculated by taking 20% of the qualified educational expenses (defined below) on the first $10,000 of qualified educational expenses.

Eligible Student for the Lifetime Learning Credit

This credit applies to any student attending a qualified post-secondary educational institution taking one or more courses to acquire or improve job skills. There is no minimum workload required. This credit may be claimed for an unlimited number of tax years for the same student. It also applies to graduate level courses. The course does not need to lead to a degree or other recognized education credential. The credit may still be claimed even if the student has a felony conviction for possessing or distributing a controlled substance (drugs).

For tax year 2016, the credit is gradually reduced if your modified adjusted gross income (MAGI) exceeds $55,000 ($111,000 if married filing a joint return) and is completely eliminated if your MAGI exceeds $65,000 ($131,000 if married filing a joint return).

This credit CANNOT be claimed if your filing status is "married filing separately," or if you were a nonresident alien for any part of the tax year and do not elect to be treated as a resident alien.

"Qualified Educational Expenses" for the Lifetime Learning Credit

These are tuition and fees required for enrollment or attendance at an accredited college, university, vocational school, or other post-secondary educational institution that is eligible to participate in the student aid programs administered by the U.S. Department of Education.

Qualified expenses may include fees for course materials such as books, supplies, and equipment ONLY if the fees MUST be paid to the educational institution as a condition of the student's enrollment or attendance.

Qualified expenses may include student activity fees ONLY if they must be paid to the school as a condition of the student's enrollment or attendance. Qualified expenses do NOT include any costs for courses or instruction that involves sports, games, hobbies, or noncredit courses, unless the education helps the student acquire or improves job skills.

Qualified expenses do NOT include room and board, insurance, transportation, nonacademic fees or other similar personal, living, or family expenses.

Expenses Paid By A Dependent Or Other Persons

If you claim an exemption on your tax return for an eligible student, treat any expenses paid by the student as if you had paid them. If someone other than you, your spouse or your dependent pays any of the student's qualified expenses directly to the educational institution (for example, a grandparent), the student is considered to have received the payment from the other person and, in turn, paid the institution. You are also able to treat these expenses as if you had paid them if you are able to claim an exemption for the student.

Adjustments to Qualified Educational Expenses

If you pay for higher education expenses with tax-free funds, you CANNOT claim a credit for those amounts. Some examples of tax-free funds are scholarships, Pell Grants, employer-provided education assistance, veterans' education assistance and any other nontaxable payments other than gifts, bequests, or inheritances.

Above-the-Line Tuition and Fees Deduction

For tax year 2016, you may be able to deduct up to $4,000 for "qualified educational expenses" (defined below) paid for yourself, your spouse, or your dependents even if you do not itemize deductions on Schedule A.

If your modified adjusted gross income (MAGI) is GREATER than $65,000 ($130,000 if you are married filing jointly), but not more than $80,000 ($160,000 if you are married filing jointly), your maximum tuition and fees deduction will be $2,000. The "Above-the-Line Tuition and Fees Deduction" is eliminated if your MAGI exceeds $80,000 ($160,000 if married filing a joint return). The deduction CANNOT be claimed if your filing status is "married filing separately," or if you were a nonresident alien for any part of the tax year and do not elect to be treated as a resident alien. It also CANNOT be claimed if the American Opportunity or Lifetime Learning Credit is claimed for the same student in the same year.

"Qualified Educational Expenses" for the Tuition and Fees Deduction

These are tuition and fees required for enrollment or attendance at an accredited college, university, vocational school, or other post-secondary educational institution that is eligible to participate in the student aid programs administered by the U.S. Department of Education.

Qualified expenses may include fees for course materials such as books, supplies, and equipment ONLY if the fees MUST be paid to the educational institution as a condition of the student's enrollment or attendance.

Qualified expenses may include student activity fees ONLY if they must be paid to the school as a condition of the student's enrollment or attendance. Qualified expenses do NOT include any costs for courses or instruction that involves sports, games, hobbies, or noncredit courses, unless the education helps the student acquire or improves job skills.

Qualified expenses do NOT include room and board, insurance, transportation, nonacademic fees or other similar personal, living, or family expenses.

Expenses Paid By A Dependent Or Other Persons

If you claim an exemption on your tax return for an eligible student, ONLY qualified educational expenses you pay can be used to claim the "tuition and fees deduction." If your dependent or someone else pays qualified education expenses, no one can take a tuition and fees deduction for those expenses. Neither you nor your dependent can deduct the expenses. For purposes of the tuition and fees deduction, you are NOT treated as paying any expenses actually paid by a dependent or someone else for whom you or anyone other than the dependent can claim an exemption. This rule applies even if you do not claim an exemption for your dependent on your tax return.

Adjustments to Qualified Educational Expenses

If you pay for higher education expenses with tax-free funds, you CANNOT claim a credit for those amounts. Some examples of tax-free funds are scholarships, Pell Grants, employer-provided education assistance, veterans' education assistance and any other nontaxable payments other than gifts, bequests, or inheritances.