- Post-secondary education costs are on the rise but Federal tax incentives attempt to provide some respite
While we’ve been talking about the Lifetime Learning Credit and the American Opportunity Credit (Hope Credit, modified for 2009-10), I would be remiss to leave out other options for taxpayers who may not qualify for either credit. If you don’t qualify for anything else, you may not be left completely on your own; you may still be able to claim a small deduction for some education expenses.
The Goods – Part 3
This is the least desirable education tax benefit since it is a deduction rather than a credit. This means the taxpayer does not get back educational expenses dollar for dollar, but instead only gets back educational expenses at their marginal tax rate level (e.g. a taxpayer with $1,000 in tuition and in the 15% tax bracket would only get back $150 as a tax deduction). The tuition and fees deduction can reduce the amount of income subject to tax buy up to $4,000, however, and is taken as an adjustment to income.
Highlights:
- You can claim this deduction even if you do not itemize (Schedule A, Form 1040)
Qualifications:
- You pay qualified education expenses of higher education
- You pay the education expenses for an eligible student
- The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption on your tax return
- Student-activity fees and expenses for course-related books, supplies and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance
Those Who Do Not Qualify:
- Your filing status is married filing separately
- Another person can claim an exemption for you as a dependent on his or her tax return. You cannot take the deduction even if the other person does not actually claim that exemption
- Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return)
- You were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens
- You or anyone else claims an education credit for expenses of the student for whom the qualified education expenses were paid
So, although it is not nearly as beneficial as the other tax credits we discussed, it may be helpful to those who cannot take advantage of those other credits.
Next week we will cover Student Loan Interest Deductions, a great little deduction that applies to a wide variety of tax payers.
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