Written By Melanie Lockert
If you’ve been paying thousands of dollars in payments for higher education costs, during tax time you’ll want to know what you can — and can’t — deduct. You might wonder, “Is college tuition tax-deductible?”
Through the IRS’ tuition and fees deduction, 2020 tax filers might be able to deduct these college-related costs.
What is the tuition and fees deduction?
Tax deductions can help lower your taxable income, which can in turn lower your tax liability. This is unlike a tax credit, where it reduces the amount you owe dollar-for-dollar (e.g. $1,000 credit = $1,000 saved on tax bill).
The tuition and fees deduction allows deductions of up to $4,000 for qualified educational expenses, including tuition and school fees. It’s possible to claim this deduction for you, a spouse, or a dependent such as a child. This benefit isn’t permanently a part of the tax code but is available for the 2020 tax year. It can, however, be extended by Congress.
Tuition and fees deduction: Qualifying expenses
Under the tuition and fees deduction, you can deduct up to $4,000 from your income which lowers your tax liability. In turn, you might pay less in taxes, so everything helps. But there are only certain qualified educational expenses that you can deduct which include:
- Tuition
- Fees
- Books
- Supplies
“Individuals are allowed an above-the-line deduction for ‘qualified tuition and related expenses’ for higher education using the Tuition and Fees Deduction,” explains Nicole Green, principal and enrolled agent at NGG Tax Group.
“These expenses include tuition and fees for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or any dependent for whom the taxpayer can claim a personal dependent, for courses of instruction at an eligible institution of higher education.”
So all the big expenses that you think of when paying for college are covered. Some important college costs that aren’t covered, however, include room and board, transportation, insurance, medical expenses, hobbies, and extracurricular activities.
Tuition and fees deduction: Eligibility requirements
If you’re paying for higher education costs, you’re likely eligible for the tuition and fees deduction in 2020.
Who’s ineligible for the tuition and fees deduction
There are a number of situations that make you ineligible for the tuition and fees deduction. These scenarios include:
- Married filing separately. If your tax-filing status is “married, filing separately”, you won’t be able to claim the deduction.
- Exemption. If another person claims an exemption for you as a dependent, you won’t be eligible to claim this deduction on your own tax return.
- Modified adjusted gross income (MAGI) exceeds $80,000 ($160,000 when filing jointly). If you make more than $80,000, you’re phased out of this opportunity.
- If you claim an American Opportunity Tax Credit or Lifetime Learning Credit. The IRS doesn’t allow “double-dipping,” so you need to choose one of these credits or the deduction.
The important one to note is you can’t claim more than one federal tax benefit when it comes to higher education costs.
“For many taxpayers, the Lifetime Learning Credit and American Opportunity Credit offer more tax saving,” explains Ben Nanney, CPA at Locums Tax PLLC.
So you can’t also claim the American Opportunity Tax Credit or Lifetime Learning Credit if you’re already taking advantage of the Tuition and Fees deduction. Similarly, you can’t deduct tax-free earnings from 529 plans as well.
How to claim the tuition and fees deduction
To claim the tuition and fees deduction, first, you’ll need to gather your Form 1098-T. This is a tax form that shows you how much you spent on qualified higher education expenses. It’s provided by the college or university that you made payments to, typically around the end of January.
You’ll need this information to fill out Form 8917, which is the tuition and fees deduction paperwork.
This deduction is made on Schedule 1, the Form 1040 or 1040-SR, as an adjustment to income. How much you can deduct will vary. It’s also considered an “above the line” deduction as you can still claim the deduction whether you decide to itemize your deductions or take the standard deduction.
The tuition and fees deduction is tiered and you can be ineligible for this tax benefit if you’re phased out. Here’s how much you can deduct based on your MAGI (for single filers).
- $4,000 deduction for taxpayers with a MAGI of $65,000 or less
- $2,000 deduction for taxpayers with a MAGI between $65,001 to $80,000
- No deduction if your MAGI is greater than $80,000
Though it might be obvious, it’s important to note that if you have a dependent, you can apply this deduction toward educational expenses that you paid within the same tax year.
Also, the student must be claimed as your dependent on your return within the same tax year.
Evaluate your tax options
Ultimately, you’ll want to compare the American Opportunity Tax Credit, Lifetime Learning Credit, and the tuition and fees deduction.
“If qualified, you can choose between the Tuition and Fees Deduction, Lifetime Learning Credit, and the American Opportunity Credit—whichever offers you the most benefit,” says Nanney.
So choose which option is best for your tax situation. It’s always best to consult with a professional who’ll go through your return with you to ensure you’re maximizing your tax benefits.
The tuition and fees deduction for the 2020 tax year, but as of now, an extension of the tuition and fees deduction for 2021 isn’t confirmed. This might change if Congress decides to extend this deduction for another year. If this tax benefit is the most advantageous for you, it’s wise to take advantage of it now.
