While attending college, can I deduct off-campus housing?

October 16, 2023 by Steve Banner, EA, MBA
College student moving into housing

The tax law offers many programs to support college education and help offset the costs that taxpayers face. For example, if your income does not exceed certain threshold amounts, you may be able to get tax credits for your college tuition and required enrollment fees in addition to other expenses you paid, such as course-related books, supplies, and equipment. However, the cost of your housing – whether on campus or off – is not included in the list of expenses that qualify for a tax credit.

On the other hand, if you have financed your college education by taking out a student loan, you may be able to claim a small tax benefit for your housing costs. This benefit is in the form of a deduction for the interest you pay on your student loan. If the purpose of the loan was solely to pay for your education expenses, you can generally deduct your interest payments related to your qualified expenses. Provided that you were enrolled at least half-time in a degree or certificate program, your qualified expenses also include room and board in addition to the amounts you paid for your tuition, fees, books, supplies, and equipment.

But this is not to say that you can rent a penthouse downtown, dine on lobster and caviar every night and expect that Uncle Sam will help pay your bills. The amount that you can include for room and board in relation to your student loan interest deduction is limited. The limit is based on the average cost of attendance (COA) for each academic year that colleges must declare for federal financial aid purposes. This COA amount for each college is the total of the estimated tuition and fees, books and supplies, room and board, travel, and personal and miscellaneous expenses that a student is likely to encounter at that college for that year. This COA figure is also used for purposes of the student loan interest deduction. When calculating your student loan interest deduction, you cannot include any amounts that exceed the room and board portion of your college’s COA for that academic period.

For example, in the COA that the University of North Texas1 (UNT) has published for the 2023-24 Academic Year, the housing and food component for Graduate students who live on campus is $10,805. For students who live off campus, their estimated housing and food amount is $10,680. Thus, if you are planning to take out a private loan to attend UNT in the 2023-24 year, you should be aware that any amounts you spend on room and board off campus that exceed $10,680 will not qualify as education expenses for your student loan interest deduction.

Example 1: Let’s say Wendy borrowed $25,000 at 5% interest to fund her graduate degree at UNT while living off campus. During the year she spent the full amount on eligible expenses relating to her studies, including $10,680 for room and board. She paid a total of $1,250 in interest ($25,000 x .05). The full $1,250 of her interest is deductible, of which the portion of her deduction that was related to her room and board was ($10,680/$25,000 x $1,250 =) $534.

If Wendy lived on campus, the portion of interest related to her room and board would have been ($10,805/$25,000 x $1,250 =) $540.

The only exception to the above limitation would be if you lived in off-campus housing that was owned or operated by the university, and the amount you were charged for room and board was higher than $10,680. In that case, you could include the full amount you paid for room and board as a qualified education expense for the purposes of the student loan interest deduction.

Coming back to our original question, under some circumstances, you can indeed deduct off-campus housing – but the amount of the benefit is limited.
 


[1] https://financialaid.unt.edu/costs

SEARCH

 

Steve Banner, EA, MBA
Tax Content Developer

 

Steve Banner began his career in the field of income tax in 1977 and has since gathered business experience in a variety of countries and cultures. In addition to the United States, he has lived and worked for extended periods in Australia, Saudi Arabia, Canada, and Sweden. Along the way he studied Adult Education and earned a Bachelor of Education, Master of Educational Administration, and MBA. He joined TaxAudit in 2016, where he is a Tax Content Developer.


 

Recent Articles

New Jersey flag over cash
If you estimate that you will owe more than $400 in New Jersey income tax at the end of the year, you are required to make estimated payments.
Audit Compass
IRS Letter 525 is sent to let you know that your tax return was reviewed. A wise taxpayer should proceed with caution, yet swiftly, from this point forward.
Cash and coins spread out on a table
Both a tax deduction and a tax credit reduce the amount you may owe on your return, and possibly increase your refund. But how they get there is different.
Two model houses and stacks of money
An IRS levy is the actual seizure of property you own. An IRS lien is a public document that notifies any creditors that the IRS has a right to your property.
This blog does not provide legal, financial, accounting, or tax advice. The content on this blog is “as is” and carries no warranties. TaxAudit does not warrant or guarantee the accuracy, reliability, and completeness of the content of this blog. Content may become out of date as tax laws change. TaxAudit may, but has no obligation to monitor or respond to comments.