Can I deduct college tuition?

February 17, 2020 by Karen Thomas-Brandt, EA
Money with a graduation hat laying on top

Having a daughter in college myself, I would love for the answer to this question to be “Yes, 100%!” However, as with most tax questions, the answer is, “It depends.” As of the end of 2017, the two options for deducting college tuition were the American Opportunity Credit and the Lifetime Learning Credit. However, under the Further Consolidated Appropriations Act of 2020, the Tuition and Fees Deduction was reinstated retroactively (see more information below). (If you are deducting tuition for work reasons, there are other options, but that is a whole other topic!)

To qualify for the American Opportunity Credit, a student must meet the following requirements:

 

  • Be the taxpayer, spouse, or a dependent claimed by the taxpayer,
  • Be enrolled at least half-time for at least one academic period at a qualifying educational institution (please go to http://ope.ed.gov/accreditation to see if your school qualifies or https://fafsa.ed.gov/FAFSA/app/schoolSearch?locale=en_EN for schools outside of the United States),
  • Be in a program leading to a degree, certificate, or other recognized educational credential,
  • Have not already claimed the American Opportunity Credit for at least four prior years, Have not completed the first four years of post-secondary undergraduate education before the tax year, and
  • Have not had a felony drug conviction.


Additionally, no credit will be allowed if:

 

  • The filing status of the tax return is Married Filing Separate,
  • The taxpayer is claimed as a dependent on another person’s tax return,
  • The taxpayer or spouse was a nonresident alien during any part of the year, and did not elect to be treated as a resident alien for tax purposes, or
  • The Lifetime Learning Credit or Tuition and Fees Deduction was claimed in the same year for the same student.


The maximum credit for the American Opportunity Credit is $2,500 per student (calculated as 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000 of qualified expenses; however, for 2019, the credit is phased out at modified adjusted gross income* levels between $80,000 and $90,000 ($160,000 and $180,000 married filing jointly). There is no credit if the taxpayer’s modified adjusted gross income* is over $90,000 ($180,000 if married filing jointly). Qualifying expenses are tuition, fees, and course materials required for enrollment or attendance.

Alternatively, you can claim the Lifetime Learning Credit, which is not as big of a credit as the American Opportunity Credit but has fewer restrictions.

To qualify for the Lifetime Learning Credit, a student must:

 

  • Be the taxpayer, spouse, or a dependent claimed by the taxpayer, and
  • Be enrolled in one or more courses at a qualifying educational institution (as described above).


Additionally, no credit will be allowed if:

 

  • The filing status of the tax return is Married Filing Separate,
  • The taxpayer is claimed as a dependent on another person’s tax return,
  • The taxpayer or spouse was a nonresident alien during any part of the year, and did not elect to be treated as a resident alien for tax purposes, or
  • The American Opportunity Credit or Tuition and Fees Deduction was claimed in the same year for the same student.

The maximum credit for the Lifetime Learning Credit is $2,000 per return calculated as 20% of the first $10,000 of qualified education expenses paid for all eligible students; however, for 2019, the credit is phased out at modified adjusted gross income* levels between $58,000 and $68,000 ($116,000 and $136,000 married filing jointly). There is no credit if modified adjusted gross income* is above $68,000 ($136,000 if married filing jointly). Qualifying expenses are tuition, fees, and course materials paid to the institution as a condition of enrollment. Unlike the American Opportunity Credit, a student does not have to be enrolled in a program leading to a degree to take the Lifetime Learning Credit.

Lastly, as mentioned above, the Tuition and Fees Deduction is back! And it is retroactive, which means that, even though it was gone for tax years 2018 and 2019, you can go back and amend those tax years to take advantage of this deduction, if you qualify.

To qualify for the Tuition and Fees Deduction, a student must meet the following requirements:
 
  • Be the taxpayer, spouse, or a dependent claimed by the taxpayer,
  • Be the payer of the education expenses. (Education expenses cannot be paid by a third party or, if for a dependent, by the dependent. However, the expenses can be paid for with a credit card or a loan, if it is in the taxpayer’s name (or spouse’s name, if married filing joint)), or
  • Be enrolled in one or more courses at a qualifying educational institution (as described above).

Additionally, no deduction will be allowed if:
 
  • The filing status of the tax return is Married Filing Separate,
  • The taxpayer is claimed as a dependent on another person’s tax return,
  • The taxpayer or spouse was a nonresident alien during any part of the year, and did not elect to be treated as a resident alien for tax purposes, or
  • The American Opportunity Credit or Lifetime Learning Credit was claimed in the same year for the same student.

The maximum deduction for the Tuition and Fees Deduction is $4,000 per return if modified adjusted gross income* is $65,000 or less ($130,000 or less if married filing jointly) and $2,000 per return if modified adjusted gross income* is between $65,001 - $80,000 ($1300,000 - $160,000 if married filing jointly). There is no deduction if modified adjusted gross income* is above $80,000 ($160,000 if married filing jointly). Qualifying expenses are tuition, fees, and course materials if purchased at the institution as a condition of enrollment or attendance.

One final note - You cannot claim a credit or deduction for education expenses paid with tax-free funds. You must reduce the amount of expenses paid with tax-free grants, scholarships, fellowships, and other tax-free education help (such as a 529 account) before calculating your education credit or deduction.

Paying for college tuition is an expensive endeavor. Fortunately for those who qualify, there are some tax breaks available.


*Refer to IRS Publication 970 for a worksheet to calculate modified adjusted gross income (MAGI).

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Karen Thomas-Brandt, EA
Corporate Trainer

 

Karen Thomas-Brandt, EA, is a Corporate Trainer at TaxAudit, the largest and fastest-growing audit defense service in the country and the exclusive provider of TurboTax® Audit Defense. With more than 16 years in the tax field, Karen has prepared thousands of tax returns and defended hundreds of taxpayers in audits. In her current role, Karen specializes in researching complicated tax topics, developing workshops, and training tax professionals on effective audit representation and tax return analysis.


 

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