What Is the Tuition and Fees Deduction?

The tuition and fees deduction is an adjustment to gross income, reported on Form 1040 or 1040A, so you can take it without having to itemize deductions.  It directly reduces your income subject to tax by up to $4,000, depending on your modified adjusted gross income.  And, you may be able to take this deduction if you do not qualify for the education credits – the Hope or lifetime learning credits.

In any case, if you qualify, you should calculate your tax both ways – either taking the tuition and fees deduction, which reduces your taxable income, or taking the Hope or lifetime learning credit, which directly reduces your tax.

Qualified Education Expenses

Qualified education expenses include tuition and certain related costs for enrollment or attendance at an eligible educational institution.  The cost of tuition is deductible.  Costs related to tuition include student activity fees, and course-related books, supplies, and equipment.  These may be deductible if they are required as a condition of enrollment or attendance.

Qualified tuition and fees expenses do not include room and board, insurance, medical expenses, travel, transportation, or other similar personal, living, or family expenses.

Academic Period

The tuition and fees must be for an academic period beginning in the year for which you are filing your return, or during the first three months of the following year.  For example, tuition you pay in December, for a spring semester or winter quarter beginning in January of the following year, is deductible in the year you pay it.

Tuition and Fees Paid with Borrowed Funds

If you pay tuition and fees with borrowed funds, such as the proceeds of a loan, you can still take the tuition and fees deduction.  The expenses you pay with the proceeds of the loan determine whether you can claim the deduction.  And you would claim the tuition and fees deduction when the related educational expenses are paid, not when you repay the loan.

You may also be able to deduct interest on a student loan.  This is a separate adjustment to gross income.

Eligible Educational Institution

The expenses must be for higher education, and eligible institutions include colleges and universities, vocational schools, and other postsecondary schools.  The educational institution can be public, private, or non-profit.

Fees

The fees and expenses must be paid as a condition of enrollment or attendance in order to be deductible.  Fees that are not directly related to a specific course, but that are required as a condition of enrollment or attendance, such as fees for on-campus organizations and activities, are deductible.

Books, Supplies and Equipment

The cost of books and supplies is deductible only if there is a requirement to purchase them directly from the educational institution.  If the books and supplies can be purchased either from the educational institution or somewhere else, the expense is not deductible, even if they are required for the course and are purchased from the institution.

Who Qualifies for the Deduction?

You qualify for the tuition and fees deduction if you pay qualified education expenses, as described above, for the higher education of an eligible student.  An eligible student, for this purpose, can be you, your spouse, or a dependent for whom you can claim an exemption on your tax return.

Who Can Actually Claim the Deduction if the Student is Your Dependent?

In general, if the student is your dependent, you can claim the tuition and fees deduction if you pay the qualifying education expenses and you actually claim an exemption for your dependent on your tax return.

There are some specific rules that apply as to who can actually claim the deduction, depending on who paid for the expenses.  These rules may be important to keep in mind when deciding who actually pays for the education expenses.

• If you actually claim an exemption for your dependent, but your dependent pays all the qualifying education expenses, no one can claim the tuition and fees deduction.
• If you do not claim an exemption for your dependent, even though you are eligible to, and either you or your dependent pays all the expenses, no one can claim the deduction.
• If neither you nor anyone else is eligible to claim an exemption for your dependent, and you paid the expenses, only your dependent can deduct the expenses.  Your payment is treated as a gift to your dependent for tax purposes.
• If you are not eligible to claim an exemption for your dependent, and your dependent paid the expenses, only your dependent can claim a deduction.

While the tuition and fees deduction is only one aspect involved in deciding whether to claim your dependent as an exemption, the effect of this deduction on each of your tax situations should be taken into account.

Payments Made Under a Divorce Decree

Expense paid directly to an eligible educational institution on the student’s behalf, under a court-approved divorce decree, can be deducted only by the student, and then only if no one else is eligible to claim an exemption for the student.

Payments Made by a Third Party

If someone else, for example a relative of the student, makes a payment directly to the educational institution on the student’s behalf, the payment is treated as having been received by the student and then paid by the student to the educational institution.  In this case, only the student can deduct the expenses, provided he or she is not your dependent or a dependent of anyone else.  If the student is your dependent, or anyone else’s dependent, no one can claim the deduction.

Who Cannot Claim the Deduction?

You cannot claim the tuition and fees deduction if you are married filing separately.  Also, if you were a nonresident alien at any time during the year, and did not elect to be treated as a resident alien for tax purposes, in the case that you were married to a U.S. citizen or resident alien, you cannot claim the tuition and fees deduction.

You cannot claim the deduction if someone else can claim you as a dependent, even if that person does not actually claim the exemption.  This goes back to the rules described above on who can actually claim the deduction when the student is a dependent.

There are different tax benefits available for education expenses, and if, for example you or someone else claims a Hope or lifetime learning credit, you cannot claim the tuition and fees deduction for those same expenses.  You could claim different tax benefits for different students, if applicable.

No Deduction for Expenses Paid with Tax-Free Funds

Also, you cannot claim the tuition and fees deduction if you paid the education expenses with tax-free funds.  You will have to reduce the amount of qualified education expenses you can claim as a deduction by the amount of any tax-free funds you receive, including:

• Nontaxable part of a distribution from a Coverdell Education Savings Account (ESA),
• Nontaxable part of a distribution from a qualified tuition program,
• Tax-free interest from U.S. Savings Bonds (Form 8815),
• The tax-free part of scholarships and fellowships,
• Pell grants,
• Employer-provided education assistance,
• Veteran’s educational assistance, or
• Any other tax-free educational assistance.

You may still be able to claim a tuition and fees deduction if the amount of qualified expenses you paid exceeds the amount of the tax-free benefits you received.

You do not have to reduce your qualified expenses by amounts that are paid with funds the student receives from wages, loans, gifts or inheritance, or funds from personal savings.

Scholarships and Fellowships

If part of a scholarship or fellowship is for the performance of services, that part may be taxable and would not have to be excluded for purposes of the tuition and fees deduction.

If a scholarship or fellowship is included in the student’s taxable income because:

• it is restricted to paying expenses, such as room and board, that are not considered qualifying education expenses, or
•  the scholarship or fellowship is not restricted, but it is used to pay expenses that are not considered qualifying education expenses,

then that amount would not have to be subtracted from the amount that qualifies for the tuition and fees deduction.

What Is the Maximum Deduction?

You can deduct your actual qualified expenses up to a maximum, depending on your modified adjusted gross income (MAGI):

• MAGI up to $65,000 ($130,000 if married filing jointly):  Maximum deduction of $4,000.
• MAGI from $65,001 to $80,000 ($130,001 to $160,000): Maximum deduction of $2,000.
• MAGI greater than $80,000 ($160,000):  No deduction allowed.

Modified adjusted gross income, for this purpose, is your adjusted gross income before the tuition and fees deduction, and if applicable, before any foreign earned income or foreign housing exclusion (Form 2555).

Reporting

The educational institution should send a Form 1098-T, Tuition Payments Statement, showing either the amounts the institution received or the amounts it billed for tuition and fees.  They may request a Form W-9S, Request for Student’s or Borrower’s Taxpayer Identification Number and Certification, for purposes of sending the Form 1098-T.

You claim the tuition and fees deduction by entering the amount on the appropriate line on Form 1040 or 1040A.  There is no separate schedule to complete.