Deductions From Federal Income Tax for Children Attending College
If you're paying for your children's college education, you might be able to deduct some or all of those costs on your taxes. However, if you qualify, you may be better off claiming either the American opportunity credit or the lifetime learning credit rather than take the deduction, because either of those credits typically saves you more money. You can only claim one tax break each year: the deduction or one of the credits.
To claim the tuition and fees deduction for costs you paid for your child, you must pay the qualifying expenses during the year and you must claim the child as your dependent. If you don't claim the child as your dependent, you can't claim the deduction, no matter how much you paid for his education.
For the tuition and fees deduction, you can only include the costs that you pay for tuition and mandatory fees at post-secondary institutions. However, you can't include the costs for medical fees, even if the college requires it; room and board; or other living expenses. In addition, you must reduce the qualifying expenses by any tax-free assistance your child receives, such as scholarships or grants. For example, if tuition totals $8,000 but your child has a $5,000 scholarship, you can only claim $3,000 of qualifying expenses.
You're limited to claiming only $4,000 for the tuition and fees deduction each year, even if you have more expenses. In addition, your income must fall below the annual limits, which vary depending on your filing status, and which are published each year in IRS Publication 970. Finally, if you are married but you and your spouse file separate returns, you're not eligible to claim the deduction at all.
Claiming the Deduction
At the end of the year, you should receive a Form 1098-T from your child's school, which shows how much was paid and how much your child received in scholarships and other tax-free aid. On your taxes, you have to figure the deduction using Form 8917. Then, use either Form 1040 or Form 1040A, and you can claim the tuition and fees deduction without itemizing.
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."