The Internal Revenue Service offers two income tax deductions related to the cost of higher education: the tuition and fees deduction, and the student loan interest deduction. Knowing the qualifications will help you minimize your income taxes through claiming these deductions.
Tuition And Fees Deduction
The tuition and fees deduction permits you to deduct up to $4,000 in qualified higher education expenses per year. Permitted expenses include your tuition and required fees. Room and board cannot be included as a deduction. You can deduct qualified expenses you pay for yourself, your spouse or a dependent that you claim on your income taxes. However, to be eligible, you cannot have a modified adjusted gross income exceeding the annual limits. As of 2011, the annual limit equals $160,000 for joint filers and $80,000 for single filers.
Considerations
Aside from the tuition and fees deduction, the IRS also offers tax credits for higher education expenses, including the American opportunity credit and the lifetime learning credit. These two tax credits often provide a bigger income tax benefit than the tuition and fees deduction. However, if you claim the tuition and fees deduction, you cannot claim any additional tax credits. Therefore, you should check your eligibility for the tax credits and figure how much they would save you before simply claiming the tuition and fees deduction.
Student Loan Interest
You can also write off the interest you pay on your student loans up to $2,500 during the year. The lender reports your interest paid on a Form 1098-E form and mails it to you at the end of the year. As long as your income does not exceed the maximum limits for the year and you do not file as married filing separately, you can write off the interest. The deduction is also an adjustment to income, so you can claim it even if you do not itemize your income taxes.
Filing on Taxes
To claim the tuition and fees deduction or the student loan interest deduction, you have to use Form 1040 or Form 1040A to file your federal income taxes. On Form 1040, report the amount of tuition and fees paid on Line 34 and the amount of student loan interest on Line 33. On Form 1040A, report the amount of tuition and fees paid on Line 19 and the amount of student loan interest on Line 18.
