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The Internal Revenue Service offers a number of tax benefits for higher education expenses, but books often won't count as a qualified expense. However, certain tax credits and exclusions do allow you to reduce your tax burden as a result of money you spent on books needed for college.
Tuition and Fees Deduction
The tuition and fees deduction allows you to write off up to $4,000 of qualified higher education expenses. These expenses include tuition and required fees. As a result, you can deduct your books only if you must purchase them through the school as a condition of attendance. For example, if your school requires that every student enrolled purchase a certain textbook from the school, you could deduct the cost of that book. However, if the school simply says the student needs the book, but the student can purchase from the school or elsewhere, the cost of that book cannot be deducted.
Lifetime Learning Credit
The lifetime learning credit allows you an annual credit of up to $2,000, calculated as 20 percent of up to $10,000 of qualified higher education expenses. However, the lifetime learning credit comes with the same restriction as the tuition and fees deduction: books qualify only if you are required to purchase the book as a condition of attendance from the school. Otherwise, you can't use the costs in calculating your credit.
American Opportunity Credit
The American opportunity credit offers the widest definition of qualified higher education expenses, which includes books and supplies no matter where you purchase them. For example, if the student needs a textbook and can purchase it either through the school or elsewhere, that cost can apply toward calculating the credit -- no matter where the student purchases the book. However, you can only claim the American opportunity credit for the first four years of post-secondary education.
If a student receives a scholarship, only the portion used for qualifying expenses is tax-free. If the student is a degree-seeking student, the student can exclude from her taxable income the portion of the scholarship used for not only tuition, but also books, supplies and equipment. While this isn't technically a tax deduction, it allows a student to avoid including more income than necessary on the tax return.
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