Are Post-Secondary Education Expenses Deductible?

 

For tax year 2017, you may be able to claim an education credit for certain higher education expenses. There are two different education credits. They are called the "American Opportunity Credit" and "Lifetime Leaning Credit."

You may be able to claim an education credit for yourself, your spouse, and/or your dependents. The amount of the credit is determined by the amount you pay for "qualified educational expenses" for each student and the amount of your modified adjusted gross income (MAGI).

NOTE: Employees who do not qualify for an education credit may be able to claim an employee job expense for job related education expenses as an itemized deduction.

American Opportunity Credit

The American Opportunity Credit can only be claimed for an eligible student (defined below). This student can be yourself, your spouse, or your dependent.

For tax year 2017, the maximum credit amount PER ELIGIBLE STUDENT can be up to $2,500 and up to $1,000 of that credit amount may be refundable. The credit is calculated by taking 100% of the first $2,000 of qualified educational expenses (defined below) and 25% of the next $2,000 of such expenses.

An ELIGIBLE STUDENT must meets ALL of the following requirements:

  • Is enrolled in one of the first four years of post-secondary education,

  • Is enrolled in a program that leads to a degree, certificate, or other recognized education credential,

  • Is taking at least one-half of the normal full-time workload for the course of study for at least one academic period beginning during the calendar year, AND

  • Is free of any felony conviction for possessing or distributing a controlled substance (drugs).

For tax year 2017, the credit is gradually reduced if your modified adjusted gross income (MAGI) exceeds $80,000 ($160,000 if married filing a joint return) and is completely eliminated if your MAGI exceeds $90,000 ($180,000 if married filing a joint return).

This credit CANNOT be claimed if your filing status is "married filing separately," or if you were a nonresident alien for any part of the tax year and do not elect to be treated as a resident alien.

"Qualified Educational Expenses" for the American Opportunity Credit

These are tuition, fees and course materials such as books, equipment and supplies required for enrollment or attendance at an accredited college, university, vocational school, or other post-secondary educational institution that is eligible to participate in the student aid programs administered by the U.S. Department of Education. The course materials are NOT required to be purchased from the educational institution. For example, they may be purchased at an off-campus bookstore or on the Internet.

Qualified expenses may include student activity fees ONLY if they must be paid to the school as a condition of the student's enrollment or attendance. Qualified expenses do NOT include any costs for courses or instruction that involves sports, games, hobbies, or noncredit courses, unless the education is part of the student's degree program.

Qualified expenses do NOT include room and board, insurance, transportation, nonacademic fees or other similar personal, living, or family expenses.

Expenses Paid By A Dependent Or Other Persons

If you claim an exemption on your tax return for an eligible student, treat any expenses paid by the student as if you had paid them. If someone other than you, your spouse or your dependent pays any of the student's qualified expenses directly to the educational institution (for example, a grandparent), the student is considered to have received the payment from the other person and, in turn, paid the institution. You are also able to treat these expenses as if you had paid them if you are able to claim an exemption for the student.

Adjustments to Qualified Educational Expenses

If you pay for higher education expenses with tax-free funds, you CANNOT claim a credit for those amounts. Some examples of tax-free funds are scholarships, Pell Grants, employer-provided education assistance, veterans' education assistance and any other nontaxable payments other than gifts, bequests, or inheritances.

Lifetime Leaning Credit

The Lifetime Learning Credit can only be claimed for an eligible student (defined below). This student can be yourself, your spouse, or your dependent.

For tax year 2017, the maximum credit amount PER TAX RETURN can be up to $2,000. The credit is calculated by taking 20% of the qualified educational expenses (defined below) on the first $10,000 of qualified educational expenses.

Eligible Student for the Lifetime Learning Credit

This credit applies to any student attending a qualified post-secondary educational institution taking one or more courses to acquire or improve job skills. There is no minimum workload required. This credit may be claimed for an unlimited number of tax years for the same student. It also applies to graduate level courses. The course does not need to lead to a degree or other recognized education credential. The credit may still be claimed even if the student has a felony conviction for possessing or distributing a controlled substance (drugs).

For tax year 2017, the credit is gradually reduced if your modified adjusted gross income (MAGI) exceeds $56,000 ($112,000 if married filing a joint return) and is completely eliminated if your MAGI exceeds $66,000 ($132,000 if married filing a joint return).

This credit CANNOT be claimed if your filing status is "married filing separately," or if you were a nonresident alien for any part of the tax year and do not elect to be treated as a resident alien.

"Qualified Educational Expenses" for the Lifetime Learning Credit

These are tuition and fees required for enrollment or attendance at an accredited college, university, vocational school, or other post-secondary educational institution that is eligible to participate in the student aid programs administered by the U.S. Department of Education.

Qualified expenses may include fees for course materials such as books, supplies, and equipment ONLY if the fees MUST be paid to the educational institution as a condition of the student's enrollment or attendance.

Qualified expenses may include student activity fees ONLY if they must be paid to the school as a condition of the student's enrollment or attendance. Qualified expenses do NOT include any costs for courses or instruction that involves sports, games, hobbies, or noncredit courses, unless the education helps the student acquire or improves job skills.

Qualified expenses do NOT include room and board, insurance, transportation, nonacademic fees or other similar personal, living, or family expenses.

Expenses Paid By A Dependent Or Other Persons

If you claim an exemption on your tax return for an eligible student, treat any expenses paid by the student as if you had paid them. If someone other than you, your spouse or your dependent pays any of the student's qualified expenses directly to the educational institution (for example, a grandparent), the student is considered to have received the payment from the other person and, in turn, paid the institution. You are also able to treat these expenses as if you had paid them if you are able to claim an exemption for the student.

Adjustments to Qualified Educational Expenses

If you pay for higher education expenses with tax-free funds, you CANNOT claim a credit for those amounts. Some examples of tax-free funds are scholarships, Pell Grants, employer-provided education assistance, veterans' education assistance and any other nontaxable payments other than gifts, bequests, or inheritances.