College Expenses Tax Deduction
We all know the cost of financing a college education is high and getting higher, and parents are searching for ways to ease the financial burden. One bright spot of relief is that you may be able to take a tax deduction for some of your tuition and other related college expenses, if you and the expenses qualify. Let's go through the details of one of these education tax breaks.
You can take a deduction for qualified education expenses of up to $4,000 in the years 2006 and 2007, if your adjusted gross income for the year is $65,000 or less if you're single, or $130,000 or less if you're married and file a joint return. You can take a deduction of up to $2,000 in the years 2006 and 2007, if your adjusted gross income for the year is $80,000 or less if you're single, or $160,000 or less if you're married and file a joint return. If you're married and file separately, you can't take the deduction; you and your spouse must file a joint return to qualify for the deduction. You also have to be a U.S. citizen or resident alien to be eligible for the deduction; nonresident aliens don't qualify. You're also not entitled to the deduction if you are claimed as a dependent on someone else's return. If you take the deduction, you must include the name and Social Security number of the student the expenses were paid for.
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Warning
This deduction was extended by legislation through the year 2007, but disappeared as of January 1, 2008. It may be extended again by legislation, but that's impossible to foresee with any degree of certainty. So if you're eligible, take advantage of this deduction while you can!
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It's important to note that for purposes of this deduction, adjusted gross income has to take into account taxable Social Security benefits, nontaxable education savings bond interest, nontaxable employer-provided adoption assistance, retirement savings deductions, the disallowance of passive activity losses, and student loan interest payments for purposes of the income limitations.
If your income level and filing status enable you to claim this deduction, you'll also want to make sure your costs meet the definition of qualified education expenses. For purposes of this deduction, qualified education expenses include tuition and fees paid for your own education, your spouse's, your child's, or anyone else who was your dependent at the time the education was undertaken. These expenses must also have been incurred at an eligible educational institution, which basically includes any post-secondary accredited public or private institution.
In addition, your qualified tuition and related expenses are reduced by any Coverdell Education Savings Account distributions and by the proceeds of any savings bond redemptions if you use those amounts to pay any of your qualified expenses for the year you're claiming the deduction for. When we say distributions or redemptions, we mean the total amount received and used, not just the interest or earnings. On the other hand, only the earnings from a qualified tuition plan distribution used toward paying qualified education expenses reduces the amount of tuition and related expenses you can count as qualified.
Finally, you can't take a tax deduction for education expenses in the same year that you may claim a Hope credit or Lifetime Learning credit. This forces you to examine the different deductions and credits you are eligible for and decide which one is of the most benefit to your individual situation.
If you're interested in claiming this tax deduction, you will have to complete IRS Form 8917, Tuition and Fees Deduction, and attach it to your income tax return.
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