The tuition and fees deduction lets you write off up to $4,000 per year in qualified education expenses if you're eligible. It might not sound like much, but if you're in the 35 percent tax bracket, that's $1,400 extra off your final bill. However, even if both the student and the parents are chipping in for college, Uncle Sam only lets one person claim the deduction.
Requirements for Parents
To take advantage of the tuition and fees deduction, you must generally pay the fees and claim an exemption for the student. This can get messy when it comes to fees for your child, but the IRS boils it down pretty simply: if you claim the exemption for your kid, you can deduct the expenses that you pay, up to the $4,000 limit as of 2013. If you don't claim your child as a dependent, you're flat out of luck. Or, if your child is the one paying the expenses, you can't claim a deduction either.
Requirments for Students
The same rules go for a student wanting to claim the tuition and fees deduction. If your parents can't claim you as a dependent and you pay the expenses, you're in the clear to deduct the costs you pay out of pocket. But, if your parents could claim you as a dependent, or your parents are the ones paying the tuition even though they don't claim you as a dependent, you're still out of luck because you're not eligible.
If the parent is eligible to claim the child as a dependent and doesn't, no one is allowed to claim the tuition and fees deduction. For example, say you have a daughter in college who meets all the requirements to be claimed as a dependent -- she is a full-time student under age 24, lives with you except when she's away at school, doesn't provide more than half her own support and isn't filing a joint return -- but you elect not to claim her as a dependent because your income is too high to claim the tuition and fees deduction. Because you could have claimed her as a dependent, she isn't allowed to claim the tuition and fees deduction herself.
Divorced parents can make the debate over who gets to claim the deduction even more contentious. If a parent is required to pay tuition and fees under a divorce decree, the IRS treats that payment as being made by the student, even if the student is still a dependent. For example, say you're divorced and your divorce decree says you must contribute $5,000 to your son's tuition each year. The IRS treats that $5,000 as paid by your son, so if you or your ex could claim him as a dependent, that $5,000 can't be deducted by you, your ex, or your son. But, even if you're divorced, you can still claim a deduction for any payments you aren't required to make you as long as you claim your child as a dependent. For example, if you're required to pay $5,000, but you pay $9,000 for tuition, you can use the $4,000 you're not required to pay for the deduction as long as you claim your child as a dependent.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."