Tax Return Help: Tuition Deduction Rules

If you are paying for qualified secondary education for yourself, your spouse or a dependent, you may be eligible for a tuition deduction on your tax return. With any tax deduction, your personal filing status, including your income, may affect your ability to take the deduction. For full details on tuition deductions, see IRS Publication 970 on Tax Benefits for Education. As a quick overview, keep in mind the following rules and mistakes to avoid.

Three Deduction Options

As a rule, there are three possible ways to deduct your qualified education expenses. First, you can use a straight tuition and fees deduction. You do not need to itemize your deductions in order to claim this; simply include the deduction on your Form 1040 or 1040A if you qualify. Second, you may be claiming the deduction as part of a Hope or Lifetime Learning credit. If so, you will need to qualify in advance for these programs. Finally, you may be taking the deduction as a qualified business expense. Here, you will need to itemize the deduction.

General Restrictions

Your filing status may restrict you from claiming a tuition and fees deduction. First, you cannot claim the deduction if you are married filing separately. You cannot claim the deduction if you could be listed as a dependent on another individual's return. Your ability to deduct tuition and fees is phased out depending on your income level, and those restrictions are detailed in Publication 970 each year. Finally, you cannot double up on deductions. How do you know where that line is drawn? Primarily, you cannot claim both a Hope and Lifetime Learning credit for a single student. Second, you cannot claim the same deduction twice such as on your personal return and on your business return.

Scholarship and Grant Restrictions

You cannot deduct money you did not personally pay toward education. For example, if you or your dependent received a scholarship, grant, fellowship or collected from a college savings account, you cannot claim this deduction. You may be spending monies saved in a Coverdell account, and this money has already received preferential tax treatment in the past. Similarly, if you take the money our of an IRA or 401k account for qualified education expenses, you may not be eligible for a deduction. If you took a loan, however, you can deduct the sum you are paying toward that loan in some cases, and you can deduct the interest on the loan in nearly every case unless your income precludes you from claiming the deduction.

Correcting Mistakes

If you made a mistake when claiming your tuition and fees deduction, it is best if you can correct the mistake prior to finalizing your taxes. You can create a new Form 1040 if you did not yet file the form. When the form has been filed with the errors still present, you must use Form 1040X to make the corrections to your submission. The IRS may not always catch your mistakes, so filing for the correction yourself will protect you in a time of audit.