College is not inexpensive. However, depending on your circumstances, you may be able to deduct all or part of your tuition expenses when filing your taxes.
Because the tax code includes various education tax credits for higher education costs, you’ll want to understand how they work to make sure you’re getting the most out of your tax advantages. Hence, the question is college tuition tax deductible?
Every year, it appears that going to college becomes more expensive. According to Usnews, for the 2023 academic year, tuition, fees, accommodation, and board for an in-state student attending a four-year public college cost $27,020 (on average).
In-state students would have spent an average of $15,180 (in 2016 USD) for the identical fees a decade ago.
Although there isn’t much you can do about rising college fees, there are a few tax incentives you can take advantage of to help offset the costs. A financial advisor can assist you in determining the best tax approach for your educational needs and objectives.
This article will inform you more about college tuition tax deduction and will answer the question, is college tuition tax deductible?
Table of contents
Is College Tuition Tax Deductible?
The tuition and fee deduction was set to expire on December 31. Taxpayers who paid eligible tuition and fees in 2021, 2022, or 2023 might claim up to $10,000 in deductions.
The elimination of this benefit emphasizes the value of a 529 college savings plan for deferring college costs. This answers question is college tuition tax deductible?
If you paid for those qualified education expenditures for a college student, such as yourself, one of your dependents (as long as no one else claims the dependant on their taxes), or your spouse, you may be eligible for a tax reduction.
Tuition and other fees that students are required to pay in order to attend a specific institution are considered qualified education costs. Expenses paid with a scholarship or other tax-free reward, however, are not deductible.
If you and your spouse file separate tax returns or if you were a nonresident alien for part of the tax year, you are ineligible for the tuition and fees deduction.
If your income exceeds a specific threshold, you won’t be able to claim the tax benefit.
You can’t use the deduction if your modified adjusted gross income is more than $80,000 (or $160,000 for joint filers).
It’s also worth noting that this is an over-the-top deduction. That means you don’t have to itemize your deductions to benefit from it.
You can actually attend college for free. Learn How To Go To College For Free.
What is Included in the Tuition and Fees Deduction?
Before we ask This answers question is college tuition tax deductible? We should understand what it entails.
Anything relevant to coursework, such as tuition, books, supplies, equipment, and activity fees that must be paid to the school as a condition of enrollment, is covered by the deduction.
The deduction does not apply to costs such as accommodation and board, insurance, student health fees, transportation, or other personal living expenses.
You may still be able to claim the tuition and fees deduction if you have a 529 college savings plan and took distributions to pay for college expenditures as long as the expenses you’re deducting were not paid with those funds.
Expenses paid with the help of a scholarship, grant, or employer cannot be deducted.
You also can’t combine the tuition and fees deduction with the education-related federal tax credits — the American Opportunity Tax Credit and the Lifetime Learning Tax Credit.
American Opportunity Credit
After answering the question Is college tuition tax-deductible? There are other options to replace college tax deduction. American Opportunity Tax Credit is the major student tax benefit available.
This tax credit was due to expire a few years ago, but it was permanently extended as part of a budget compromise reached by Congress.
The “Hope Credit” may be familiar to some of you. The American Opportunity Credit is a revamped version of the Hope Credit, which was established as part of the American Recovery and Reinvestment Act (ARRA).
It differs from the Hope Credit in that it can be used for up to four years of post-secondary education rather than just two.
For 2023, below is an explanation of how the education tax credit works and who is eligible:
1. Eligibility:
For at least one academic period commencing during the tax year, the student must be enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.
Furthermore, because the student has not finished the first four years of post-secondary study, graduate students are not eligible to get this credit.
2. Credit Amount (2021):
up to $2,500 per qualified student for tuition, fees, and course materials paid during the taxable year.
Tax credits are available for 100% of the first $2,000 paid during the taxable year, plus 25% of the next $2,000 paid during the year.
3. How to Claim:
Fill out IRS Form 8863 to determine your eligibility, credit amount, and claim the credit.
This year’s addition: On your Form 8863, you must include the educational institution’s employment identification number (EIN) to claim the American opportunity credit.
You should also file form 1098-T, which you should get from your educational institution early in the year.
It’s also worth mentioning that even if your income is below the typical minimum income requirements for filing taxes, you must file a tax return to receive this tax credit.
4. Refundability:
You can get back 40% of your credit (up to $1,000) if you don’t use it.
This means that even if you owe no taxes, you may be eligible for a refund.
5. Income Limits:
A taxpayer can claim the credit for qualified student expenses if his or her modified adjusted gross income is $80,000 or less ($160,000 or less for joint filers).
If a taxpayer’s modified adjusted gross income exceeds certain amounts, the credit is decreased.
A taxpayer who earns more than $90,000 in modified adjusted gross income ($180,000 for joint filers) is ineligible for the credit.
6. School Eligibility:
You can only claim the credit if you’re enrolled in an approved college or university.
To make sure you’re eligible, look out recognized universities in the US Department of Education’s database.
7. Tuition, necessary fees, and course materials are all eligible for credit.
Room and board, insurance, transportation, expenditures paid with tax-free assistance, medical expenses.
Expenses used for another deduction or credit, and student fees that are not required as a condition of enrollment or attendance are all ineligible expenses.
This article provides more detail on American Opportunity Credit?
Lifetime Learning Credit
The Lifetime Learning Benefit is another significant education tax credit.
For the same student, you cannot claim both the American Opportunity Credit and the Lifetime Learning Credit in the same calendar year (although you could claim both for two different students).
So, what exactly is the distinction between the two credits?
American Opportunity Credit vs. Lifetime Learning Credit
The American Opportunity Credit (AOC) is similar to the Lifetime Learning Credit (LLC), but there are a few important differences. The Lifetime Learning Credit is available to anyone who is not pursuing a degree.
For example, you could be taking career development classes to learn or upgrade job abilities.
You can only claim the American Opportunity Credit once every four years for the same student. The number of years you can claim a Lifetime Learning credit based on the same student’s expenses is unlimited.
The American Opportunity Credit is partially refundable, whereas the Lifetime Learning Credit is not. It also has a $2,000 yearly cap, compared to the AOC’s $2,500.
If you have an option between the two, the AOC is preferred than the LLC for these reasons.
Here’s how the Lifetime Learning education tax credit works and who qualifies for it:
1. Eligibility:
Eligible students enrolled in an eligible educational institution are eligible for qualified tuition and related expenditures.
This credit can be used to pay for courses for undergraduate, graduate, and professional degrees, as well as courses to learn or upgrade job skills.
2. Credit Amount (for 2023):
Up to $2,000 per tax return for tuition, fees, and course materials paid during the taxable year.
For the first $10,000 in qualified expenses, a tax credit of 20% can be claimed.
3. How to Claim:
Fill out IRS Form 8863 to determine your eligibility, credit amount, and claim the credit.
4. Refundability:
This credit cannot be refunded. This means that if you owe no tax, you will not be eligible for a refund.
5. Income Limits:
In 2021, the credit begins to phase out at an enhanced MAGI of $80,000 ($160,000 for joint filers), with a total phaseout at a MAGI of $90,000 ($180,000 for couples filing jointly).
6. School Eligibility:
Courses to develop or upgrade job skills are available for all years of post-secondary study. It is not necessary for the institution to be accredited.
7. Credit can be Received for:
Tuition, necessary fees, and course materials.
In case there are no funds to foot the necessary fees, here are 15 Best Private College Loans For Students In 2023
8. Ineligible expenses:
Room and board, insurance, transportation, expenditures paid with tax-free assistance, medical expenses.
Expenses used for another deduction or credit, and student fees that are not required as a condition of enrollment or attendance.
Tax Credits for College Students
The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit are two extra tax advantages that college students (or their parents and guardians) may qualify for (LLC).
For up to four years, the AOTC allows parents (and students who aren’t considered dependents) to lower their tax payment by up to $2,500.
It can boost the size of your tax refund even if it reduces your tax liability to a negative number because it’s a refundable tax credit.
Independent students and parents who paid for acceptable education expenses for undergraduate courses may be eligible for the AOTC.
However, the amount you can claim is determined by your modified adjusted gross income (MAGI).
Your MAGI must be less than $90,000 (or more than $180,000 if you’re filing a combined tax return) to qualify for the entire $2,500 credit.
The LLC, on the other hand, is a tax credit that is not refundable. This implies that if the credit reduces your tax liability below zero, you won’t get a refund.
As a result, claiming the AOTC is the best option. However, the LLC is beneficial because parents and students can claim the credit if they are paying for an undergraduate, graduate, or technical education.
Furthermore, there is no restriction on how many years it can be claimed for.
If you’re single, your MAGI can’t be more than $69,000, and if you’re filing jointly, it can’t be more than $138,000 to get the entire $2,000 LLC.
If your filing status is married filing separately, you were a nonresident alien at any point throughout the year, and/or someone else is claiming you (or the student you paid for) as a dependant, you are ineligible for the tax credit.
The Student Loan Interest Deduction
If you borrow money to pay for college, your debts can help you save money on your taxes in two ways.
To begin with, tuition paid using loans is still eligible for numerous tuition tax reductions.
Secondly, you may be eligible for a student loan interest deduction when you repay the loan. This deduction allows you to deduct up to $2,500 from your taxable income each year.
The interest must be paid during the year to qualify for the deduction. You cannot file as married filing separately.
Also, you and your spouse cannot be claimed as a dependant by another taxpayer, and your modified adjusted gross income cannot exceed the yearly limits.
Many students do not know the procedures to pay their tuition fees. How To Pay For College Tuition In 2023
Tax Tips for College Students
A financial advisor can assist you with budgeting for college, setting up college savings accounts, and determining the tax breaks and credits you are eligible for.
It doesn’t have to be difficult to find a qualified financial counselor.
SmartAsset’s free tool matches you with up to three local financial advisors, and you may interview them for free to choose which one is best for you. Start looking for a financial advisor today if you’re ready to attain your financial goals.
Begin accumulating financial papers as soon as possible. Set a date for receiving your W-2 forms, 1099 forms, investment income information, last year’s tax refund, student loan interest, and the remaining items on the IRS Tax Form Checklist.
You have a higher chance of avoiding a last-minute marathon session to make the filing deadline if you break the frightening chore of completing your taxes into smaller portions.
Learn as much as you can about what you can and cannot deduct from your taxes as soon as feasible.
To maximize your tax return, you should learn everything you can about how taxes affect your situation.
Learn how to become a financial advisor here. How Can I Become a Financial Advisor in Less Time? Cost, Schools, Salary
FAQs on Is College Tuition Tax Deductible In 2023?
As at December 31, 2020, the deduction for college tuition and fees is no longer available. Other deductions, such as the American Opportunity Tax Credit and the Lifetime Learning Credit, can help you pay for college.
Parents can deduct the tuition fees they pay for their children’s education, allowing them to save tax even if they don’t have any other tax-saving options. Parents can claim the exact fees they paid in a given fiscal year.
The American Opportunity Tax Credit for 2023 taxes is as follows: Can be claimed up to $2,500 per student, calculated as 100% of the first $2,000 in college costs and 25% of the next $2,000 in college costs. It can be used for both tuition and fees, and required course materials (books, supplies, and equipment).
Section 80C Tax Deduction for Tuition Fees
In Conclusion
With this, we believe there is an answer to the question; Is college tuition tax deductible? Other deductions such as the American Opportunity Tax Credit and the Lifetime Learning Credit, can help you pay for college.
Interest paid on student loans can also be deducted for college graduates. You do not have to itemize your taxes to take advantage of the interest deduction. (With their free filing option, the tax filing provider H&R Block actually provides the appropriate forms for this deduction.)
Lastly, aside from these credits, having a 529 college savings and financial plan can assist reduce your out-of-pocket expenses.
