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Tuition and Fees Deduction

Mark Kantrowitz

May 18, 2009

The Tuition and Fees Deduction allows taxpayers to deduct up to $4,000 in tuition expenses as an above-the-line exclusion from income. This tax benefit is also known as the Limited Deduction for Tuition Expenses or as the Torricelli Deduction. This deduction may be taken even if the taxpayer does not itemize. The deduction is currently set to expire at the end of 2009.

Amount of the Deduction

Taxpayers can deduct up to $4,000 in tuition expenses as an exclusion from income. This means you can deduct the tuition expenses even if you don’t itemize deductions on schedule A of your 1040.

The tax deduction is only for tuition expenses paid by the taxpayer.

The value of the deduction depends on the taxpayer’s tax bracket. For example, it is worth up to $1,000 for a taxpayer in the 25% tax bracket.

Since this deduction is taken above the line, it can make the family eligible for additional need-based aid or federal means-tested benefit programs during the next year since it reduces AGI. That can potentially make this deduction more attractive than the Hope Scholarship or Lifetime Learning tax credit, if the additional aid is in the form of grants instead of loans. For federal student aid key thresholds include $50,000 (simplified needs test to disregard assets) and $30,000 (automatic zero EFC).

The deduction is especially popular for families who earn too much money to qualify for the Lifetime Learning tax credit. (It previously was also popular with families who were above the income phaseouts for the Hope Scholarship. However, Congress increased the income phaseouts for the Hope Scholarship above the income phaseouts for the Tuition and Fees deduction for 2009 and 2010.) The deduction is also popular with families that are seeking to qualify for the Earned Income Tax Credit.

Income Phaseouts

The deduction is phased out for taxpayers with adjusted gross incomes of $65,000 to $80,000 (single filers) and $130,000 to $160,000 (married filing jointly). Within the phaseout income bands the amount of the deduction is reduced to $2,000.

Taxpayers who are married cannot claim the tax credit if they are filing separate returns.

If you are claimed as a dependent on someone else’s tax return, you cannot use the tuition deduction.

The deduction is only available for taxpayers who file IRS Form 1040.

Coordination Restrictions

You cannot use this deduction if you claimed a tax credit for education expenses for the same student in the same year. This prevents double-dipping with the Hope Scholarship and Lifetime Learning tax credits for the same student in the same year.

You can use the Tuition and Fees Deduction in conjunction with tax-free distributions from Coverdell Education Savings Accounts, qualified tuition programs, and education savings bonds, provided that different education expenses form the basis for each benefit.

This article originally appeared on FinAid.org.


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