Can I Claim Tuition & Interest Deductions if My Child Claims Themselves?

It’s no secret that paying for higher education has gotten expensive. According to a recent annual survey by U.S. News, “The average cost of tuition and fees for the 2018–2019 school year was $35,676 at private colleges, $9,716 for state residents at public colleges and $21,629 for out-of-state students at state schools.”

When you couple the rising cost of education with taxpayers losing the ability to deduct tuition and fees for tax years 2018 through 2025, paying for college has gotten a lot more challenging for many Americans. Fortunately, there are still some tax breaks and the student loan interest deduction for a dependent that you can take advantage of to help make paying for university more affordable.

2017 Tax Year and Prior

Parents paying student loans got a tax deduction for the 2017 tax year and prior. If you have not filed your 2017 taxes yet, then you are still able to deduct tuition and fees for your child for that year, as long as she qualifies as a dependent; this means that she cannot claim herself on her taxes. To determine if your child qualifies as a dependent, refer to the IRS website for a list of six dependency tests that help you figure out whether or not your child is a dependent.

In the event your child has been determined to be your qualifying dependent, then for your 2017 taxes, you are able to claim a deduction of up to $4,000 for your dependent for the cost of qualified education expenses associated with pursuing higher education. However, there are a couple of exceptions to these deductions that you should be aware of which are explained in greater depth at IRS.gov.

Tax Years 2018 and Beyond

With the introduction of the Tax Cut and Jobs Act, taxpayers lost many previously allowable deductions starting with the 2018 tax year. Although you can no longer claim exemptions or tuition and fees deductions for your dependents, you can still deduct interest on an education loan on your income tax and you may qualify for certain education tax credits. The American Opportunity Tax Credit (AOTC), as well as the Lifetime Learning Credit (LLC), are available for college students and their parents or guardians to shoulder some of the costs of higher education.

The American Opportunity Tax Credit

The AOTC is a partially refundable tax credit of $2,500 per student. As the IRS explains, “The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student.” When a tax credit is partially refundable, the amount of the credit that exceeds your tax liability is refunded to you. In the case of the AOTC, you can receive up to 40 percent of the excess credit amount in the form of a refund for a maximum refund of $1,000.

The Lifetime Learning Credit

In addition to the AOTC, you can claim the LLC for your dependent’s qualifying education expenses, but in order to claim either credit, she has to have received an IRS Form 1098-T, Tuition Statement, from an eligible institution. However, unlike the AOTC, the LLC is not a refundable tax credit, so you will not receive any portion of the credit in excess of your tax liability in the form of a refund. The credit is worth 20 percent of the first $10,000 in qualifying education expenses you pay, for a maximum of $2,000 per return.

As with all tax credits, there are certain criteria and rules of eligibility – consider consulting with a qualified tax professional or familiarize yourself with the publications on the IRS’ website before claiming any tax credits or student loan interest on taxes.