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Taxmap/pub17/p17-102.htm#TXMP40b81230 Tuition and Fees Deduction

Tuition and Fees Deduction

You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or a dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education, as explained later under What Expenses Qualify.

The tuition and fees deduction can reduce your income subject to tax by up to $4,000. It is available through 2005.

Table 21-2 summarizes the features of the tuition and fees deduction.

You may be able to take a credit for your education expenses instead of a deduction. You can choose the one that will give you the lower tax. See chapter 37 for details about the credit.

Taxmap/pub17/p17-102.htm#TXMP08aff550 Can You Claim the Deduction

Deduction

The following rules will help you determine if you can claim the tuition and fees deduction.

Taxmap/pub17/p17-102.htm#TXMP28aa971d Who Can Claim the Deduction

Who Can Claim the Deduction

Generally, you can claim the tuition and fees deduction if all three of the following requirements are met.

1. You paid qualified education expenses of higher education.
2. You paid the education expenses for an eligible student.
3. The eligible student is yourself, your spouse, or a dependent for whom you claim an exemption (defined in chapter 3) on your tax return.

Qualified education expenses are defined in the next column under What Expenses Qualify. Eligible students are defined later under Who Is an Eligible Student.

Taxmap/pub17/p17-102.htm#TXMP68da9c22 Who Cannot Take the Deduction

Who Cannot Take the Deduction

You cannot take the tuition and fees deduction if any of the following apply.

• Your filing status is married filing separately.
• Another person can claim an exemption for you as a dependent on his or her tax return. You cannot take the deduction even if the other person does not actually claim that exemption.
• Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return).
• You were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.
• You or anyone else claims a Hope or lifetime learning credit in 2004 with respect to expenses of the student for whom the qualified education expenses were paid.

Table 21-2.

Tuition and Fees Deduction at a Glance

Do not rely on this table alone. Refer to the text for more details.

Question		Answer
What is the maximum benefit?		You can decrease your income subject to tax by up to $4,000.
Where is the deduction taken?		As an adjustment to income on Form 1040, line 23, or 1040A, line 16.
For whom must the expenses be paid?		A student enrolled in an eligible educational institution who is either: · you, · your spouse, or · your dependent for whom you claim an exemption.
What tuition and fees are deductible?		Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board.

Taxmap/pub17/p17-102.htm#TXMP784516d7 What Expenses Qualify

What Expenses Qualify

The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, the deduction is allowed for qualified education expenses paid in 2004 in connection with enrollment at an institution of higher education during 2004 or for an academic period (defined earlier under Student Loan Interest Deduction) beginning in 2004 or in the first 3 months of 2005.

Taxmap/pub17/p17-102.htm#TXMP3ce2095b Payments with borrowed funds.

Payments with borrowed funds.

You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. You use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account.

Taxmap/pub17/p17-102.htm#TXMP00a9f0c3 Student withdraws from class(es).

Student withdraws from class(es).

You can claim a tuition and fees deduction for qualified education expenses not refunded when a student withdraws.

Taxmap/pub17/p17-102.htm#TXMP3e116a89 Qualified Education Expenses

Qualified Education Expenses

For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution.

Taxmap/pub17/p17-102.htm#TXMP1e6a280e Eligible educational institution.

An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

Certain educational institutions located outside the United States also participate in the U.S. Department of Education's Federal Student Aid (FSA) programs. See chapter 6 of Publication 970 for more information.

Taxmap/pub17/p17-102.htm#TXMP2b9ddcc8 Related expenses.

Related expenses.

Student-activity fees and fees for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.

Taxmap/pub17/p17-102.htm#TXMP495a5c8b No Double Benefit Allowed

You cannot do any of the following.

• Deduct qualified education expenses you deduct under any other provision of the law, for example, as a business expense,
• Deduct qualified education expenses for a student on your income tax return if you or anyone else claims a Hope or lifetime learning credit for that same student in the same year,
• Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. See Figuring the Taxable Portion of a Distribution in chapter 7 (Coverdell ESA) and in chapter 8 (QTP) of Publication 970.
• Deduct qualified education expenses that have been paid with tax-free interest on U.S. savings bonds (Form 8815). See Figuring the Tax-Free Amount in chapter 10 of Publication 970.
• Deduct qualified education expenses that have been paid with tax-free scholarship, grant, or employer-provided educational assistance. See the following section on Adjustments to qualified education expenses.

Taxmap/pub17/p17-102.htm#TXMP7bbe752e Adjustments to qualified education expenses.

Adjustments to Qualified Education Expenses

If you paid qualified education expenses with certain tax-free funds, you cannot claim a deduction for those amounts. You must reduce the qualified expenses by the amount of any tax-free educational assistance and refunds you received.

Taxmap/pub17/p17-102.htm#TXMP1a672aa9 Tax-free educational assistance.

This includes:

• Tax-free part of scholarships and fellowships (see chapter 1 of Publication 970),
• Pell grants (see chapter 1 of Publication 970),
• Employer-provided educational assistance (see chapter 11 of Publication 970),
• Veterans' educational assistance (see chapter 1 of Publication 970), and
• Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.

Taxmap/pub17/p17-102.htm#TXMP329a5ed3 Refunds.

Qualified education expenses do not include expenses for which you, or someone else who paid qualified education expenses on behalf of a student, receive a refund. (For information on expenses paid by a dependent student or third party, see Who Can Claim a Dependent's Expenses, later.)

If a refund of expenses paid in 2004 is received before you file your tax return for 2004, simply reduce the amount of the expenses paid by the amount of the refund received. If the refund is received after you file your 2004 tax return, see When Must the Deduction Be Repaid (Recaptured), in chapter 6 of Publication 970.

You are considered to receive a refund of expenses when an eligible educational institution refunds loan proceeds to the lender on behalf of the borrower. Follow the above instructions according to when you are considered to receive the refund.

Taxmap/pub17/p17-102.htm#TXMP41c709bc Amounts that do not reduce qualified education expenses.

Amounts that do not reduce qualified education expenses.

Do not reduce qualified education expenses by amounts paid with funds the student receives as:

• Payment for services, such as wages,
• A loan,
• A gift,
• An inheritance, or
• A withdrawal from the student's personal savings.

Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations.

• The use of the money is restricted to costs of attendance (such as room and board) other than qualified education expenses.
• The use of the money is not restricted and is used to pay education expenses that are not qualified (such as room and board).

Taxmap/pub17/p17-102.htm#TXMP6f2bc781 Expenses That Do Not Qualify

Expenses That Do Not Qualify

Qualified education expenses do not include amounts paid for:

• Insurance,
• Medical expenses (including student health fees),
• Room and board,
• Transportation, or
• Similar personal, living, or family expenses.

This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.

Taxmap/pub17/p17-102.htm#TXMP53e07de0 Sports, games, hobbies, and noncredit courses.

Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify.

Taxmap/pub17/p17-102.htm#TXMP52d2b37d Comprehensive or bundled fees.

Some eligible educational institutions combine all of their fees for an academic period into one amount. If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. See How Do You Figure the Deduction, later, for more information about Form 1098-T.

Taxmap/pub17/p17-102.htm#TXMP0a526d92 Who Is an Eligible Student

Who Is an Eligible Student

For purposes of the tuition and fees deduction, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution. The student must have either a high school diploma or a General Educational Development (GED) credential.

Taxmap/pub17/p17-102.htm#TXMP3872410a Who Can Claim a Dependent's Expenses

Who Can Claim a Dependent's Expenses

Generally, to claim the tuition and fees deduction for qualified education expenses for a dependent, you must:

• Have paid the expenses, and
• Claim an exemption for the student as a dependent.

Table 21-3 summarizes who can claim the deduction.

Table 21-3.

Who Can Claim a Dependent's Expenses?

Do not rely on this table alone. See Who Can Claim a Dependent's Expenses in chapter 6 of Publication 970.

IF your dependent is an eligible student and you...	AND...	THEN...
claim an exemption for your dependent	you paid all qualified education expenses for your dependent	only you can deduct the qualified education expenses that you paid. Your dependent cannot take a deduction.
claim an exemption for your dependent	your dependent paid all qualified education expenses	no one is allowed to take a deduction.
do not claim an exemption for your dependent, but are eligible to	you paid all qualified education expenses	no one is allowed to take a deduction.
do not claim an exemption for your dependent, but are eligible to	your dependent paid all qualified education expenses	no one is allowed to take a deduction.
are not eligible to claim an exemption for your dependent	you paid all qualified education expenses	only your dependent can deduct the amount you paid. The amount you paid is treated as a gift to your dependent.
are not eligible to claim an exemption for your dependent	your dependent paid all qualified education expenses	only your dependent can take a deduction.

Taxmap/pub17/p17-102.htm#TXMP03166165 How Much Can You Deduct

The maximum tuition and fees deduction in 2004 is $4,000, $2,000, or $0, depending on the amount of your modified adjusted gross income (MAGI). For details on figuring your MAGI, see chapter 6 of Publication 970.

Taxmap/pub17/p17-102.htm#TXMP75c9decf How Do You Figure the Deduction

How Do You Figure the Deduction

Generally, you figure the deduction using the Tuition and Fees Deduction Worksheet in the Form 1040 or Form 1040A instructions. However, if you are filing Form 2555, Form 2555-EZ, or Form 4563, or if you exclude income from sources within Puerto Rico, you must complete the worksheet in chapter 6 of Publication 970.

To help you figure your tuition and fees deduction, you should receive Form 1098-T, Tuition Statement. Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2005.

To claim the deduction, enter the allowable amount on Form 1040, line 27, or Form 1040A, line 19.

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