Federal tax laws offer a variety of ways to reduce your taxes using qualified educational expenses. Examples include the Lifetime Learning and American Opportunity credits, Coverdell education savings accounts, and tax-free interest on savings bonds used to pay for higher education. One simple method is to take the tuition and fees deduction. You do not need to itemize to claim this deduction, but you will need to file Form 8917 with your tax return.
Your modified adjusted gross income determines the maximum deduction you can claim. As of 2011, married taxpayers filing jointly could deduct $4,000 if their modified adjusted gross income did not exceed $130,000, or $2,000 if income was between $130,000 and $160,000. No deduction was allowed if their income exceeded $160,000. The income limits were halved for taxpayers who were qualified widows or widowers, single or heads of households. Married taxpayers could not file separate returns and claim the deduction. You cannot take the educational deduction and an educational tax credit for the same student in the same year. No one who has been a nonresident alien, or whose spouse has been a nonresident alien, for any part of the tax year can take the deduction unless married and filing a joint return.
You may deduct the amount you pay to an accredited school for tuition. Virtually all private vocational schools, community colleges, public universities and private colleges are eligible. The school can tell you whether it is accredited and eligible under the Department of Education guidelines for student aid.
Fees and Supplies
Only those books, fees and similar expenses that you pay to the school and that the school requires you to pay directly to it are deductible. For example, if a university includes a lab fee on your bill, you can deduct it. If the school requires you to buy textbooks from the school bookstore, you can deduct this cost.
Personal expenses are not deductible. This includes the cost of your room or apartment, transportation expenses, insurance and food. Your medical expenses are not deductible as an educational expense, even if the school includes a fee for health services.
Tuition and fees for noncredit courses are not deductible. This typically includes classes in sports and recreation. However, if you must complete such a course to satisfy the requirements of your degree plan, the tuition and fees are deductible.
You cannot deduct your own educational expenses if anyone else can claim you as a dependent. If you pay the expenses for a student you are entitled to claim as a dependent, you must actually claim the student as a dependent on your tax return if you want to deduct the expenses you paid. If you pay educational expenses for someone you cannot claim as a dependent, the IRS considers those payments as made by the student, and only the student may be eligible to claim the deduction. Payments made to the school under the terms of a divorce decree are also treated as student payments, so the student is the only one who might be eligible to claim the deduction.
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