Posted by Abundant Wealth Planning LLC

Tax Deductions: Is Education Fees Deductible?

Tax Deductions: Is Education Fees Deductible?

Going to college seems to be more expensive each year. The preparation, schooling, internship, and accommodation of a student attending a four-year public establishment cost a fortune. As a person, there is little you can do about the exponential increase in tuition fees, but some tax cuts can be used to offset tuition fees.

Education Credits and Fees Deductions

Credits and fees deduction were not available for the 2019 financial year. These are the taxes that you file at the beginning of 2020. The loss of this deduction also highlights the usefulness of a university savings plan, such as the 529 plan on college expenses.

You are eligible for the tax exemption if you have covered expenses with eligible studies for a student such as yourself, one of your dependents (provided that no one else can claim your dependent on their taxes). 

Qualified education expenses include studies and other fees that students must pay to attend the institution of their choice. But you cannot deduct the fees paid for a scholarship or other prizes without fees.

You are not entitled to tax deductions and contributions if you and your spouse file separate income tax returns or if you are a non-resident foreigner for part of the fiscal year. You also cannot claim tax exemption if your income exceeds a specific limit. If your adjusted gross income exceeds $ 80,000 (or more than $ 160,000 for joint taxpayers), you will not be entitled to a deduction. Also, keep in mind that this is a line deduction. This implies that you do not need to itemize your deductions to take advantage of them.

Tax credits for university students

Students or their parents and guardians could benefit from two additional tax reductions: the U.S. tax credit and the Lifetime Learning Credit. The tax exemption mentioned allows parents and students who are not considered dependents to reduce their tax rate to $ 2,500 for a period of up to four years. Since this is a refundable tax credit, you can increase the amount of the refund even if you reduce the tax liability to a negative number.

Independent students and parents are eligible for the American Opportunity Credit if they pay the qualified education expenses used in graduate programs. The sum you can claim depends on your corresponding gross profit (MAGI). To obtain a total credit of $ 2,500, MAGI cannot exceed $ 90,000, or more than $ 180,000 if you file a joint income tax return.

Since the lifelong learning credit is a non-refundable tax credit, which means that you cannot get a refund if the credit reduces the tax liability to less than zero, it is advisable to apply for the United States Opportunity Tax Credit. However, Lifetime Learning Credit is useful because parents and students can apply for credit if they pay for college, graduate, or technical school. Also, no rule says it can only be requested for a certain number of years.

To get the full credit of $ 2,000, MAGI cannot exceed $ 56,000 if you are single or $ 112,000 if you file a joint income tax return. You are not entitled to the tax credit if your marital status is married by filing the separate declaration, or you are a non-resident foreigner at one time in the year, and someone else claims you as a dependent.

Deduction of interest on student loans

A useful tax exemption for students and their parents is the deduction of interest on student loans. For taxes in 2019, this deduction is equivalent to the amount paid in interest on student loans, up to $ 2,500, which is the maximum deduction.

To benefit from the deduction, the following criteria must be met:

    •    Interest paid, in 2019, for an eligible student loan.

    •    Use any marital status, except for the separate marriage declaration.

    •    The adjusted gross income (AGI) is less than $ 80,000 if you claim to be alone as a winner or a qualified widower. Adjusted gross income is less than $ 165,000 if you file jointly.

    •    No one else claims you (or your spouse if you file a joint return) as an employee of tax returns.

For a student loan to be eligible for the deduction, you must have used that loan to pay for the costs of higher education for yourself or one of your dependent family members (with a few exceptions).

Bottom Line

The deduction of university fees is no longer available. However, you can still help pay for tuition through other deductions, such as the U.S. Opportunities Tax Credit and the Lifetime Learning Credit. Graduates can also deduct the interest they pay for student loans. The deduction of interest does not require tax details. In addition to these loans, it is very helpful to have college savings plan 529 for your help to reduce direct costs.

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