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Tuition and Fees Deduction

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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 will expire at the end of 2013.

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.

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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.

(The deduction was originally limited to $3,000 in 2002 and 2003 and was increased to $4,000 in 2004. It was originally set to expire in 2005. The omnibus tax extender legislation passed by Congress in December 2006 extended the tuition and fees deduction for two years (2006 and 2007). Title II, Section 202 of the Emergency Economic Stabilization Act of 2008 (PL 110-343) extended it by another two years (2008 and 2009). It was extended for another two years along with the other Bush tax cuts, expiring at the end of 2011. Then the American Taxpayer Relief Act of 2012 extended is retroactively to 2012 and forward to the end of 2013.)

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.

How to Take the Deduction

There is usually a line on IRS Form 1040 for the deduction.

(The 2006 extension was passed after the IRS had already printed the 2006 federal income tax returns, so there was no line on the 2006 IRS Form 1040 for reporting the deduction. Likewise for the 2012 extension. Instead, taxpayers had to include the amount of the tuition and fees deduction on line 35 "Domestic production activities deduction". Taxpayers had to enter a "T" to the left of the amount if it includes just the tuition and fees deduction or a "B" if the amount also includes both the domestic production activities deduction and the tuition and fees deduction. If a "B" was entered, the taxpayer had to attach a breakdown to the return showing the amounts claimed for each deduction.)

 

 
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