Tuition and Fees Deduction

The Tuition Deduction allows a taxpayer to take a deduction for eligible college expenses paid on behalf of themselves, their spouse, or a dependent. The amount deducted must be reduced by any tax-free scholarships, grants, or awards received.

The maximum 2008 Tuition and Fees Deduction is $4,000, and is subject to income limitations.

You do not need to itemize your deductions to use it. In other words, you can take the standard deduction and still also deduct your tuition and fees. However, a taxpayer must choose between using this deduction or claiming one of the two tax credits also available for college expenses (Hope Scholarship or Lifetime Learning Credit).

 Expenses Eligible for the Tuition Deduction:

To receive a deduction for tuition and fees, the costs must be incurred at an eligible institution. Any college or university eligible to participate in a Department of Education student aid program is considered eligible.

If a student’s institution is eligible, then all tuition and registration fees paid to that university are deductible up to the annual limit. Additionally, “related fees” are deductible, if the university considers them mandatory.

Related fees might include, but are not limited to:

• Books
• Equipment and Computers
• Student Activity Fees

Fees that are not deductible include:

• Room and Board
• Health Fees
• Insurance
• Transportation

Tuition paid with money received from a student loan is still deductible.

 Income Phase-Outs for the Tuition Deduction:

The Tuition and Fees Deduction is reduced (or “phased-out”) for taxpayers with certain levels of Modified Adjusted Gross Income (MAGI).

For taxpayers claiming Single, Head of Household, or Widow(er) status:

• $65,000 (MAGI) or less– Up to $4,000 may be deducted.
• $65,001 – 80,000 (MAGI) – Up to $2,000 may be deducted.
• $80,001 (MAGI) or more– No deduction is permitted.

For taxpayers claiming a Married Filing Jointly status:

• $130,000 (MAGI) or less– Up to $4,000 may be deducted.
• $130,001 - $160,000 (MAGI) – Up to $2,000 may be deducted.
• $160,001 or more – No deduction is allowed.

This deduction is not permitted for a taxpayer filing their tax return under the Married Filing Separately status.

 Coordination with Other Tax Benefits:

The Tuition and Fees Deduction cannot be taken for the same student, in the same year as the Hope Scholarship and Lifetime Learning Tax Credits. However, the Tuition and Fee Deduction may be taken for one person in the same year a tax credit is used for another.

The Tuition and Fees Deduction prohibits deducting amounts that have been previously deducted as something else, or deducting tuition that was paid with a tax-free withdrawal from a Section 529 Plan or Coverdell Education Savings Account.

Most institutions will send individuals a Form 1098-T to verify tuition received by the school. Other eligible expenses may be added to this to calculated the total amount eligible for the deduction.