At tax time, you may qualify for tax deductions for your education-related expenses. Tax deductions may be taken for anyone listed on your tax return, which could be yourself, your spouse, or your dependents. The IRS requires enrollment at an eligible education institution, which it defines as any school that is eligible to participate in a student financial aid program run by the U.S. Department of Education. Find out here if your school is on the list.
Education Credits vs. Itemized Deductions
The IRS offers two different education credits, the Lifetime Learning Credit and the American Opportunity Education Credit. If you choose to utilize one of these credits, you cannot also claim itemized tax deductions for the same education-related expenses. Choose the education credit or itemized deductions that reduce your tax bill the most.
Qualifying Expenses for Education Credits
Any expense that is required for enrollment or attendance at an eligible educational institution is considered as a qualifying expense for claiming an education credit. However, as explained below, each education credit has a slightly different definition of qualifying expenses.
For the American Opportunity Education Credit, you may claim the following tax-deductible expenses:
Student activity fees, provided that the payment of such fees is required by the institution in order to enroll or attend school; and
The cost of any books, supplies, and equipment utilized for course(s) of study, regardless of where these materials were purchased.
For the Lifetime Learning Credit, you may claim the following tax-deductible expenses:
Student activity fees, regardless of whether the payment of such fees is strictly required for enrollment or attendance; and
The cost of course-related books, supplies, and equipment, provided that the purchase of such materials is required for enrollment or attendance of school.
Qualifying Expenses for Education-Related Tax Deductions
You may choose to take tax deductions by itemizing your education-related expenses instead. Education-related tax deductions fall into a few different categories:
Tuition and Fees Deduction
Tuition and student activity fees are tax-deductible. If your Modified Adjusted Gross Income is annually less than $80,000, or $160,00 for married couples filing jointly, then you likely qualify for the Tuition and Fees Deduction that was authorized by the Bipartisan Budget Act of 2018. The Tuition and Fees Deduction allows you to subtract up to $4,000 of higher education expenses from your taxable income.
Student Loan Interest Deduction
Interest paid on student loans is also tax-deductible. Just like with the Tuition and Fees Deduction, if your Modified Adjusted Gross Income is annually less than $80,000, or $160,00 for married couples filing jointly, then you likely qualify for the Student Loan Interest Deduction. For qualifying student loans, including any federal or private loan but excluding loans from family members or qualified employer plans, you may deduct up to $2,500 from your gross taxable income. Qualifying expenses, which generally encompass all the necessary costs of attending school, are defined as follows:
Tuition and student activity fees;
Room and board, provided that the cost is not more than the greater of (a) the allowance for room and board, as defined by the school for federal financial aid purposes, or (b) the actual housing expense incurred, if the student resides in housing owned or operated by the school;
Books, supplies and equipment; and
Other necessary expenses, such as transportation.
Work-Related Education Deductions
Whether you are self-employed or employed by a company, you may be able to deduct the costs of qualifying work-related education from your taxable income. Treated as a business expense, you can subtract educational costs from your gross income if your curriculum meets all of the following criteria:
The education is required for you to maintain your present employment, but is above and beyond the minimum educational criteria required to obtain the job;
The education serves a business purpose of your employer (which may be yourself); and
The education is not part of a program that will qualify you for a new trade or business.
With the exception of the Student Loan Interest Deduction, which allows for itemization of a wider range of education-related expenses, the following types of expenses are not qualifying education expenses, even if they are necessary for school enrollment or attendance:
Room and board;
Personal living or family expenses;
Program fees for sports, games or hobbies; and
Fees for any non-credit courses, unless the courses are required by the student’s degree program.
Need More Information?
Check out the IRS’s handy Interactive Tax Assistant tool to determine your individual eligibility for educational credits or education-related tax deductions.
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