Student health fee, transportation fee, AOTC and 529

I agree Pub 970 could use a rewrite around this issue.

I view it this way: the section of the tax code defining the AOTC and LLC specifically excludes “nonacademic fees” from “qualified tuition and related expenses.” That section names a few such fees and then a blanket statement that excludes expenses not related to the student’s “academic course of instruction.” Pub 970 provides examples of such expenses that don’t qualify, but without a clear expression of the general exclusion.

That general exclusion is probably a more helpful tool when you’re deciding which fees are and are not qualified.* So, I don’t think those fees you’ve listed are qualified expenses for the tax credits even though the school requires you to pay them.

*adding to the confusion is that “student activity fees” are also specifically excluded, but IRS guidance has specifically included those (as qualified) if they’re required and so the institutions generally include them on the 1098t (there are good reasons for this, but it can add confusion).

And then, adding another layer of potential confusion, the section of the code outlining QTP (529) benefits is based on a definition of “qualified higher education expenses” which is not the same as the definition of “qualified tuition and related expenses” used for tax credits. The definition of “qualified higher education expenses” does not have the same language excluding nonacademic fees. So, fees that aren’t qualified for the purposes of tax credits might be qualified for QTPs.