Student Loan Information

You can deduct qualified education expenses on higher education for you, your spouse or your dependents.  Such a deduction can reduce your income by $4000.  There are specific requirements to claim this deduction.

If you have incurred expenses on higher education on yourself, your spouse or your dependent, you are eligible to claim the tuition fees deduction.

However, this deduction is not available to you if you file your return as married filing separately or if your Modified Adjusted Gross Income (MAGI) is more than $80,000 ($160,000 for people filing a joint return).  Also, this deduction is not available if you are a nonresident alien for part of the year.  People claiming a hope or the lifetime learning credit for expenses will also not be eligible.  If any other person is claiming exemption for you as a dependent on his or her tax return, then also you will not be qualified to claim such a deduction.

The maximum amount that can be claimed is limited to $4000.  This deduction is taken as an adjustment to income on form 1040 line 34 or form 1040A line 19.

The following expenses can qualify for deduction –

1. Tuition and fees paid for enrolment at an eligible post secondary educational institution.
2. Related expenses for course related books, supplies and equipment if these expenses are to be paid as a condition of enrolment.

Keep in mind the following tips while claiming such a deduction:

1. If you arrange a loan to pay for these expenses, still you can claim this deduction.  The deduction is to be claimed in the year you pay for the expenses and not in the year you raise the loan.
2. If you claim such expenses as a business expense, you cannot claim them again by way of this deduction.
3. If you are claiming hope or lifetime learning credit, you cannot claim this deduction.
4. If you have taken a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP) for part of these expenses, such amount cannot be claimed again by way of deduction.  So no double benefit is allowed.
5. If you have paid part of these expenses with the tax free interest on U.S. savings bonds or with the tax free scholarship, such amount is not eligible for deduction again.  You need to exclude such amount.
6. If the student pays these educational expenses out of a loan, a gift or an inheritance, or wages, he/she can still claim that deduction.  Such financial arrangements do not come in the way of claiming a deduction.
7. Some expenses do not qualify for this deduction – expenses like insurance, medical expenses, expenses on room and board, transportation expenses and personal or family expenses cannot be claim this deduction under this rule.
8. Some educational institutions might have bundled the total fees together.  So they will combine all expenses for an academic period in one amount.  In such a situation, you need to request the institution for the allocation of these expenses so that you can find out the qualified education expenses.  The institutions are required to make this allocation and they will provide you this information on form 1098-T.

About the Author:

Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.

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