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The 2010 Tuition and Fees Deduction

Rules For Deducting Your Child's College Costs On Your Tax Return

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Overview of the Tuition Deduction:

The Tuition Deduction allows a taxpayer to take a deduction for eligible college expenses paid on behalf of themselves, their spouse, or a dependent. The amount deducted must be reduced by any tax-free scholarships, grants, or awards received.

The maximum 2010 Tuition and Fees Deduction is $4,000, and is subject to income limitations.

This deduction is actually an “above the line” adjustment, which means you do not need to itemize your deductions to use it. In other words, you can take the standard deduction and still also deduct your tuition and fees. However, a taxpayer must choose between using this deduction or claiming one of the two tax credits also available for college expenses (American Opportunity Tax Credit or Lifetime Learning Credit).

Expenses Eligible for the 2010 Tuition Deduction:

To receive a deduction for tuition and fees, the costs must be incurred at an eligible institution. Any college or university eligible to participate in a Department of Education student aid program is considered eligible.

If a student’s institution is eligible, then all tuition and registration fees paid to that university are deductible up to the annual limit. Additionally, “related fees” are deductible, if the university considers them mandatory.

Related fees might include, but are not limited to:

  • Books
  • Equipment and Computers
  • Student Activity Fees

Fees that are not deductible include:

  • Room and Board
  • Health Fees
  • Insurance
  • Transportation

Additionally, tuition paid with money received from a student loan is still deductible.

Income Phase-Outs for the 2010 Tuition Deduction:

The Tuition and Fees Deduction is reduced (or “phased-out”) for taxpayers with certain levels of Modified Adjusted Gross Income (MAGI).

For taxpayers claiming Single, Head of Household, or Widow(er) status:

  • $65,000 (MAGI) or less– Up to $4,000 may be deducted.
  • $65,001 – 80,000 (MAGI) – Up to $2,000 may be deducted.
  • $80,001 (MAGI) or more– No deduction is permitted.

    For taxpayers claiming a Married Filing Jointly status:

    • $130,000 (MAGI) or less– Up to $4,000 may be deducted.
    • $130,001 - $160,000 (MAGI) – Up to $2,000 may be deducted.
    • $160,001 or more – No deduction is allowed.

    This deduction is not permitted for a taxpayer filing their tax return under the Married Filing Separately status.

    Coordination with Other Tax Benefits:

    The Tuition and Fees Deduction cannot be taken for the same student, in the same year as the Hope Scholarship, Lifetime Learning Credit, or the American Opportunity Tax Credit. However, the Tuition and Fee Deduction may be taken for one person in the same year a tax credit is used for another.

    The Tuition and Fees Deduction has a “double dipping” rule similar to the Student Loan Interest Deduction. This rule prohibits deducting amounts that have been previously deducted as something else, or deducting tuition that was paid with a tax-free withdrawal from a Section 529 Plan or Coverdell Education Savings Account.

    Where to Claim the Tuition Deduction:

    Most institutions will send individuals a Form 1098-T to verify tuition received by the school. Eligible expenses may be added to this and deducted in the “Adjustments” section of a Form 1040 or 1040A.

    For More Information:

    There are complex rules regarding this deduction and certain situations, such as refunded tuition, students paying their own tuition, and the timing of tuition payments.

    Be sure to review IRS Publication 970 and talk to your tax professional before you make any decisions about your unique situation.

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