Let’s face it: figuring out how to pay for college is tough. In the 2018-2019 academic year, the average tuition expenses for state colleges was $10,230 (in-state) and $26,290 (out-of-state). While there’s nothing you can do about the increasing cost of higher education, you can, however, curb your overall expenses with a college tuition tax deduction — if you qualify for it.
With tax deductions, you can increase your take-home income and offset certain expenses. As someone paying for their own tuition, or for a dependent, leveraging this tax break can leave you with some extra money.
If you don’t know what a college tuition tax deduction is, how it works, and whether or not you qualify for one, this guide is for you.
Is College Tuition Tax Deductible?
Up until 2017, college tuition and other relevant fees used to be tax-deductible.
The IRS permitted people to file for “Tuition and Fees Deductions,” provided that they met certain criteria. This allowed students, parents, and spouses to receive significant cuts in their adjusted gross incomes.
That deduction has, unfortunately, since expired, and will no longer be counted in the tax years that follow, until further notice.
The good news is, if you filed your return in 2017, you can still claim the tuition tax-deductible for that year (in case you already haven’t) by filing an amended return form.
However, if you started college after 2017, you cannot claim a tuition tax-deductible and may have to leverage an education credit.
In any case, all is not lost. The decision to discontinue tuition and fee deductions isn’t permanent and might be reversed in the future.
What’s Included in a Tuition Tax-deductible?
Tuition expenses, along with some other mandatory academic fees (such as enrollment), are considered above-the-line deductibles i.e. they could be deducted from a person’s gross income.
Aside from tuition and fees, the cost of books, supplies (required for courses), and interest paid on student loans (during the year) are also included in the deductibles.
According to the current rules of the Internal Revenue Service (IRS), a person can claim up to $4,000 in tuition tax-deductible per year.
Who Qualifies for a Tuition Tax Deduction?
Before you start calculating your tuition tax-deductibles, you have to first make sure that you’re eligible.
According to the IRS, in order to qualify, you:
- Should not be filing separately, if married (only couples who file jointly are eligible to claim tuition tax deductions)
- Must not be termed as a dependent by someone else, if claiming for yourself (you can’t claim deductions for expenses paid for by someone else)
- Must not be counting expenses paid for after 2017
- Should not have claimed the Lifetime Learning Tax Credit or AOTC in 2017
The next set of conditions is related to who paid for the tuition. According to the IRS, the following individuals are eligible to claim education tax deductions if they’re:
- A student who paid for their education themselves
- A student’s spouse who paid for them (if they file jointly)
- Parents of a student, whom they’ve termed as a dependent
- Any third-party who paid for the expenses, which can include the both, the student’s friends and relatives
Last, but not least, your annual modified adjusted gross income (MAGI) – the taxable income left after subtracting all above-the-line deductibles – shouldn’t exceed a certain amount. There’s also a limit to the amount that can be deducted.
The two MAGI brackets, along with how much deductions they can get, include:
- Up to $4,000 in tuition tax deductions for those with a modified adjusted gross income of up to $65,000 (or $130,000 if married and filed jointly) for 2017
- Up to $2,000 in tuition tax deductions for those with a modified adjusted gross income between $65,000 and $80,000 (or between $130,000 and $160,000 if married and filed jointly) for 2017
If your MAGI exceeds the $80,000 (for single filers) or $160,000 (for joint filers) limits, you won’t be eligible for deductions.
Which Expenses Don’t Qualify as Deductibles?
People often make the mistake of counting their overall college-related expenses (including hidden college costs) as tax-deductible.
However, not every academic expense can be deducted from the gross income.
The IRS is clear about what counts as a deductible and what doesn’t. Here’s a list of all the expenses that don’t qualify:
- Room and board (includes both on-campus and off-campus rents)
- Student health fees and other medical expenses
- Sports/Games/Hobbies (unless participation is mandatory according to the curriculum)
- Other living expenses
Payments made with tax-free income and any tax-exempt funds, such as scholarships, don’t qualify for tax deductions either.
How Do I Claim a Tuition Tax Deduction Paid for in 2017?
If you didn’t claim a tuition tax deduction in your 2017 returns, there’s still hope.
You can claim those deductibles by filing IRS form 1040X (Amended U.S. Individual Income Tax Return).
As the name suggests, this form is meant to rectify mistakes and make claims in previously-filed returns. You can file amended returns for up to 3 years after filing your original return.
It can take up to 16 weeks for a Form 1040X to be processed.
Are Interest Payments on Student Loans Tax-deductible?
The IRS doesn’t allow tax deductions for interest paid on personal loans. However, you can claim special deductions for interest paid on student loans during the tax year, and curb some of those expenses.
As of 2019, this student loan interest deduction is still in effect and applies to qualified student loans – including both private student loans and federal loans.
Loans taken from a relative or from an employer via a qualified plan don’t count.
To file for returns, you’ll need IRS forms 1098-E and 1098-T.
The conditions are all the same, except that the maximum annual MAGI limit for joint-filing couples is $165,000.
If you fall within the threshold, you can deduct up to $2,500 from your gross income as interest.
Alternatives to Tuition Tax Deduction
If you started paying for your college tuition in 2018 or later, as of now, there’s no way to count that expense as tax-deductible.
However, this isn’t a dead end.
You can still save some money with a tax credit, or in this case, education credit.
The IRS offers two education credits, namely the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
Determining which student tax credit is best for you depends on a number of factors.
Let’s take a look at both:
1. American Opportunity Tax Credit (AOTC)
Out of all the tax breaks for college students, the American Opportunity Tax Credit (AOTC) is by far, the most rewarding.
To qualify for the AOTC, a person must:
- Be enrolled in the first 4 years of their higher education program
- Not have claimed the AOTC or the former Hope credit for more than 4 years
- Not have a felony drug conviction
- Must be enrolled at least half-time during one academic period during the tax year
The rest of the conditions are the same. Taxpayers with MAGIs greater than $80,000, but less than $90,000 (or greater than $160,000, but less than $180,000, for married couples filing jointly) qualify for partial credit.
Those who are eligible can get up to $2,500 worth of AOTC per year.
2. Lifetime Learning Credit (LLC)
Lifetime Learning Credit (LLC) is the last option on the table.
Compared to AOTC, the LLC is easier to qualify for, but awards less. Furthermore, it has a lower MAGI threshold.
To qualify, the student must be:
- Pursuing an undergraduate, graduate, or a professional degree
- Be enrolled in at least one academic period, beginning in the tax year
If your MAGI is $67,000 or more (or $134,000 or more, for married couples filing jointly), you don’t qualify for LLC.
Those who qualify can get up to $2,000 per return.
Wrapping it Up
While it’s true that education tax deductions aren’t available right now, there are still a number of other open options that can ease the load of your expenses.
Looking at the rising tuition expenses, it’s easy to get discouraged from pursuing a college education.
However, if you know your way around the system, and understand how to leverage tax benefits, such as college tax credits and deductions, nothing is impossible.