I was talking to a co-worker today, and she said she deducts a large amount of her kid’s tuition on her taxes. I said I though there was just a $2500 credit, and she said she is using software (H&R Block’s maybe) and deducts quite a bit more than that.
Our D starts college next year, so we haven’t filed with tuition yet. Is there a way to deduct a larger portion of tuition?
Publication 970 addresses Tax Benefits for Education.
Whether qualified tuition is deductible depends on the Modified Adjusted Gross Income of the taxpayer. Upper limit is $160,000 for married filing jointly:
http://www.irs.gov/pub/irs-pdf/p970.pdf
See page 37–Section 6. Tuition and Fees Deduction
There are also limits on the amount of the deduction and the expenses that qualify.
It looks like your co-worker is taking the tuition and fees deduction (line 34 on the 1040 using Form 8917) rather than the Education Credit (line 50, Form 8863,) and American Opportunity Credit (line 68, also from Form 8863).
Every year I run the numbers both ways. So far, the Education Credit and AOC as credits against the federal tax has resulted in the lowest overall tax (federal plus state). However for some people using the tuition and fees deduction can be the best choice.
She’s probably confused.
You have to have $4000 worth of qualified education expenses in order to get the full $2500 American Opportunity credit (you get 100% of the first $2000 & 25% of the 2nd $2000). It is a tax credit, not a deduction. You can claim it for each student.
There is also the lifetime learning credit. It is 20% of tuition but maxes out at $2000 per tax return (not per student). Again, a credit not a deduction.
The tuition and fees deduction allows a deduction of $4000. The amount of taxes this saves will depend on your tax rate. In most (all?) cases it will be less beneficial than a credit.
They all have different income limitations.
I think your co-worker is confused. Maybe She enters more than the $4k in the software and does not realize the amount of benefit is limited.
Right…when our kids were in college, we were able to enter huge amounts on the lines…but only a limited amount was counted towards our tax credit.
I think your coworker is entering the amount and doesn’t realize that only the allowable portion is being used to compute her taxes.
People don’t know what deductions or credits they are really taking. A friend swore he was taking the child credit for his kids. First, 2 of the 3 were too old, and second, he made way too much money. He was taking the standard exemption. Confused.
shoboemom, just keep your receipts for books and supplies, and a copy of your bill with tuition and payments. If you use tax software, it’s pretty easy.
At least with tuition we can deduct something.
I was pretty irritated, that even with all the surgeries, expensive glasses, therapy and other medical crap, we couldn’t deduct anything.
May I ask a question? We got the $2500 American Opportunity Credit four the past four years. I believe that’s the limit on that for one student. This January, we still payed about $4500 in tuition for our son’s final college semester. When we file taxes next year, is any of that credited or deducted from taxes? Or are we done with tax breaks?
4 years is the limit for each student for the AOC. You can still use the lifetime learning credit (assuming you qualify income wise). You will only get a credit for 20%, so around $900 on $4500 of qualified expenses.
Or you can use the tuition deduction. See which benefits you most
If you file a state tax return as well, be sure to run both the federal and state both ways. Using the tuition and fees deduction will reduce your AGI which can affect the other deductions available if you itemize deductions, and can affect the AGI on your state return if you needn’t add the tuition and fees figure back in to your state taxable income.