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19.   Education- Related Adjustments

Introduction

This chapter discusses the education-related adjustments you can deduct in figuring your adjusted gross income.

This chapter covers the student loan interest deduction, tuition and fees deduction, and the deduction for educator expenses.

Useful Items - You may want to see:

Publication

  • 970 Tax Benefits for Education

What's New

Student loan interest deduction.   For 2016, the amount of your student loan interest deduction is gradually reduced (phased out) if your MAGI is between $65,000 and $80,000 ($130,000 and $160,000 if you file a joint return). You can't claim the deduction if your MAGI is $80,000 or more ($160,000 or more if you file a joint return).

Tuition and fees deduction.   The tuition and fees deduction was extended to cover qualified education expenses paid in 2015 and 2016.

Form 1098-T requirement.   For tax years beginning after June 29, 2015, generally tax year 2016 returns for most taxpayers, the law requires a taxpayer (or a dependent) to have received a Form 1098-T from an eligible educational institution in order to claim the tuition and fees deduction, American opportunity credit, or the lifetime learning credit.

  However, for tax year 2016, a taxpayer may claim one of these education benefits if the student does not receive a Form 1098-T because the student’s educational institution is not required to send a Form 1098-T to the student under existing rules (for example, if the student is a nonresident alien, has qualified education expenses paid entirely with scholarships, or has qualified education expenses paid under a formal billing arrangement). If a student’s educational institution is not required to provide a Form 1098-T to the student, a taxpayer may claim one of these education benefits without a Form 1098-T if the taxpayer otherwise qualifies, can demonstrate that the taxpayer (or a dependent) was enrolled at an eligible educational institution, and can substantiate the payment of qualified tuition and related expenses.

Deduction for educator expenses.   The deduction for educator expenses was made permanent for tax years beginning after 2014.

Student Loan Interest Deduction

Generally, personal interest you pay, other than certain mortgage interest, isn't deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500. Table 19-1 summarizes the features of the student loan interest deduction.

Table 19-1. Student Loan Interest Deduction at a Glance Do not rely on this table alone. Refer to the text for more details.

Feature Description
Maximum benefit You can reduce your income subject to tax by up to $2,500.
Loan qualifications Your student loan:
• 
must have been taken out solely to pay qualified education expenses, and
  can't be from a related person or made under a qualified employer plan.
Student qualifications The student must be:
you, your spouse, or your dependent; and
  enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution.
Limit on modified adjusted gross income (MAGI) $160,000 if married filing a joint return;  
$80,000 if single, head of household, or qualifying widow(er).

Student Loan Interest Defined

Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments.

Qualified Student Loan

This is a loan you took out solely to pay qualified education expenses (defined later) that were:

  • For you, your spouse, or a person who was your dependent (defined in chapter 3) when you took out the loan;

  • Paid or incurred within a reasonable period of time before or after you took out the loan; and

  • For education provided during an academic period for an eligible student.

Loans from the following sources aren't qualified student loans.

  • A related person.

  • A qualified employer plan.

Exceptions.   For purposes of the student loan interest deduction, the following are exceptions to the general rules for dependents.
  • An individual can be your dependent even if you are the dependent of another taxpayer.

  • An individual can be your dependent even if the individual files a joint return with a spouse.

  • An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($4,050 for 2016).

  

Reasonable period of time.   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program.

  Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met.
  • The expenses relate to a specific academic period.

  • The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period.

  If neither of the above situations applies, the reasonable period of time is determined based on all the relevant facts and circumstances.

Academic period.   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. If an educational institution uses credit hours or clock hours and doesn't have academic terms, each payment period can be treated as an academic period.

Eligible student.   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.

Enrolled at least half-time.   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study.

  The standard for what is half of the normal full-time work load is determined by each eligible educational institution. However, the standard may not be lower than any of those established by the U.S. Department of Education under the Higher Education Act of 1965.

Related person.   You can't deduct interest on a loan you get from a related person. Related persons include:
  • Your spouse;

  • Your brothers and sisters;

  • Your half brothers and half sisters;

  • Your ancestors (parents, grandparents, etc.);

  • Your lineal descendants (children, grandchildren, etc.); and

  • Certain corporations, partnerships, trusts, and exempt organizations.

Qualified employer plan.   You can't deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan.

Qualified Education Expenses

For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. They include amounts paid for the following items.

  • Tuition and fees.

  • Room and board.

  • Books, supplies, and equipment.

  • Other necessary expenses (such as transportation).

The cost of room and board qualifies only to the extent that it isn't more than:

  • The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student; or

  • If greater, the actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

Eligible educational institution.   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.

  Certain educational institutions located outside the United States also participate in the U.S. Department of Education's Federal Student Aid (FSA) programs.

  For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training.

  An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. The deductibility of interest on the loan isn't affected by the institution's subsequent loss of eligibility.

  
The educational institution should be able to tell you if it is an eligible educational institution.

Adjustments to qualified education expenses.   You must reduce your qualified education expenses by certain tax-free items (such as the tax-free part of scholarships and fellowship grants). See chapter 4 of Pub. 970 for details.

Include as Interest

In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest.

Loan origination fee.   In general, this is a one-time fee charged by the lender when a loan is made. To be deductible as interest, the fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. A loan origination fee treated as interest accrues over the life of the loan.

Capitalized interest.    This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan.

Interest on revolving lines of credit.   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. See Qualified Education Expenses , earlier.

Interest on refinanced student loans.   This includes interest on both:
  • Consolidated loans—loans used to refinance more than one student loan of the same borrower, and

  • Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan.

If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you can't deduct any interest paid on the refinanced loan.

Do Not Include as Interest

You can't claim a student loan interest deduction for any of the following items.

  • Interest you paid on a loan if, under the terms of the loan, you aren't legally obligated to make interest payments.

  • Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs.

  • Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. For more information, see Student Loan Repayment Assistance in chapter 5 of Pub. 970.

Can You Claim the Deduction?

Generally, you can claim the deduction if all of the following requirements are met.

  • Your filing status is any filing status except married filing separately.

  • No one else is claiming an exemption for you on his or her tax return.

  • You are legally obligated to pay interest on a qualified student loan.

  • You paid interest on a qualified student loan.

Interest paid by others.   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. See chapter 4 of Pub. 970 for more information.

No Double Benefit Allowed

You can't deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, home mortgage interest).

How Much Can You Deduct?

Your student loan interest deduction is generally the smaller of:

  • $2,500, or

  • The interest you paid during the tax year.

However, the amount determined above is phased out (gradually reduced) if your MAGI is between $65,000 and $80,000 ($130,000 and $160,000 if you file a joint return). You can't take a student loan interest deduction if your MAGI is $80,000 or more ($160,000 or more if you file a joint return). For details on figuring your MAGI, see chapter 4 of Pub. 970.

How Do You Figure the Deduction?

Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the Form 1040 or Form 1040A instructions. However, if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1 in chapter 4 of Pub. 970.

To help you figure your student loan interest deduction, you should receive Form 1098-E, Student Loan Interest Statement. Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2016 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2017.

For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. However, if you pay qualifying interest that isn't included on Form 1098-E, you can also deduct those amounts. For information on allocating payments between interest and principal, see chapter 4 of Pub. 970.

To claim the deduction, enter the allowable amount on Form 1040, line 33, or Form 1040A, line 18.

Tuition and Fees Deduction

You may be able to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependent(s). You can't claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education, as explained later under Qualified Education Expenses.

What is the tax benefit of the tuition and fees deduction?   The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000.

  This deduction is claimed as an adjustment to income. This means you can claim this deduction even if you don't itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to you if you don't qualify for the American opportunity or lifetime learning credit.

You can choose the education benefit that will give you the lowest tax. You may want to compare the tuition and fees deduction to the education credits. See chapter 35 for more information on the education credits.

Table 19-2 summarizes the features of the tuition and fees deduction.

Can You Claim the Deduction?

The following rules will help you determine if you can claim the tuition and fees deduction.

Who Can Claim the Deduction?

Generally, you can claim the tuition and fees deduction if all three of the following requirements are met.

  1. You pay qualified education expenses of higher education.

  2. You pay the education expenses for an eligible student.

  3. The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption (defined in chapter 3 ) on your tax return.

The term “qualified education expenses” is defined later under Qualified Education Expenses . “Eligible student” is defined later under Who is an Eligible Student . For more information on claiming the deduction for a dependent, see Who Can Claim a Dependent's Expenses , later.

Table 19-2. Tuition and Fees Deduction at a Glance

Don't rely on this table alone. Refer to the text for complete details.

Question Answer
What is the maximum benefit? You can reduce your income subject to tax by up to $4,000.
What is the limit on modified adjusted gross income (MAGI)? $160,000 if married filing a joint return; $80,000 if single, head of household, or qualifying widow(er).
Where is the deduction taken? As an adjustment to income on Form 1040 or Form 1040A.
For whom must the expenses be paid? A student enrolled in an eligible educational institution who is either: 
• you,  
• your spouse, or  
• your dependent for whom you claim an exemption.
What tuition and fees are deductible? Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board.

Who Can't Claim the Deduction?

You can't claim the tuition and fees deduction if any of the following apply.

  • Your filing status is married filing separately.

  • Another person can claim an exemption for you as a dependent on his or her tax return. You can't take the deduction even if the other person doesn't actually claim that exemption.

  • Your MAGI is more than $80,000 ($160,000 if filing a joint return).

  • You (or your spouse) were a nonresident alien for any part of 2016 and the nonresident alien didn't elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Pub. 519.

What Expenses Qualify?

The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, the deduction is allowed for qualified education expenses paid in 2016 in connection with enrollment at an institution of higher education during 2016 or for an academic period beginning in 2016 or in the first 3 months of 2017.

Academic period.   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. If an educational institution uses credit hours or clock hours and doesn't have academic terms, each payment period can be treated as an academic period.

Paid with borrowed funds.   You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account.

Student withdraws from class(es).   You can claim a tuition and fees deduction for qualified education expenses not refunded when a student withdraws.

Qualified Education Expenses

For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution.

Eligible educational institution.   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.

  An eligible educational institution also includes certain educational institutions located outside the United States that are eligible to participate in a student aid program administered by the U.S. Department of Education.

  
The educational institution should be able to tell you if it is an eligible educational institution.

Related expenses.   Student activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.

Prepaid expenses.   Qualified education expenses paid in 2016 for an academic period that begins in the first 3 months of 2017 can be used in figuring an education credit for 2016 only. See Academic period , earlier.

You can't use any amount you paid in 2015 or 2017 to figure the qualified education expenses you use to figure your 2016 education credit(s).

No Double Benefit Allowed

You can't do any of the following.

  • Deduct qualified education expenses you deduct under any other provision of the law, for example, as a business expense.

  • Deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American opportunity or lifetime learning credit for that same student in the same year.

  • Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. See Coordination with Tuition and Fees Deduction in chapter 8 of Pub. 970.

  • Deduct qualified education expenses that have been paid with tax-free interest on U.S. savings bonds (Form 8815). See Figuring the Tax-Free Amount in chapter 10 of Pub. 970.

  • Deduct qualified education expenses that have been paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. See the following section on Adjustments to Qualified Education Expenses .

Adjustments to Qualified Education Expenses

For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. The result is the amount of adjusted qualified education expenses for each student. You must also reduce qualified education expenses by the other amounts referred to in No Double Benefit Allowed , earlier.

Tax-free educational assistance.   For tax-free educational assistance received in 2016, reduce the qualified education expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. See Academic period , earlier.

  Some tax-free educational assistance received after 2016 may be treated as a refund of qualified education expenses paid in 2016. This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2016 for qualified education expenses paid on behalf of a student in 2016 (or attributable to enrollment at an eligible educational institution during 2016).

  If this tax-free educational assistance is received after 2016 but before you file your 2016 income tax return, see Refunds received after 2016 but before your income tax return is filed , later. If this tax-free educational assistance is received after 2016 and after you file your 2016 income tax return, see Refunds received after 2016 and after your income tax return is filed , later.

  This tax-free educational assistance includes:
  • The tax-free part of scholarships and fellowship grants (see Tax-Free Scholarships and Fellowship Grants in chapter 1 of Pub. 970);

  • The tax-free part of Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1 of Pub. 970);

  • Employer-provided educational assistance (see chapter 11 of Pub. 970);

  • Veterans' educational assistance (see Veterans' Benefits in chapter 1 of Pub. 970); and

  • Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.

  Generally, any scholarship or fellowship grant is treated as tax free. However, a scholarship or fellowship grant isn't treated as tax free to the extent the student includes it in gross income (the student may or may not be required to file a tax return for the year the scholarship or fellowship grant is received) and either of the following is true.
  • The scholarship or fellowship grant (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1 of Pub. 970.

  • The scholarship or fellowship grant (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1 of Pub. 970.

  
You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. For details, see Adjustments to Qualified Education Expenses in chapter 35.

Refunds.   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Some tax-free educational assistance received after 2016 may be treated as a refund. See Tax-free educational assistance , earlier.

Refunds received in 2016.   For each student, figure the adjusted qualified education expenses for 2016 by adding all the qualified education expenses for 2016 and subtracting any refunds of those expenses received from the eligible educational institution during 2016.

Refunds received after 2016 but before your income tax return is filed.   If anyone receives a refund after 2016 of qualified education expenses paid on behalf of a student in 2016 and the refund is paid before you file an income tax return for 2016, the amount of qualified education expenses for 2016 is reduced by the amount of the refund.

Refunds received after 2016 and after your income tax return is filed.   If anyone receives a refund after 2016 of qualified education expenses paid on behalf of a student in 2016 and the refund is paid after you file an income tax return for 2016, you may need to repay some or all of the credit. See Credit recapture , later.

Coordination with education savings bonds, Coverdell education savings account, and qualified tuition programs.   Reduce your qualified education expenses by any qualified education expenses used to figure the exclusion from gross income of (a) interest received under an education savings bond program, or (b) any distribution from a Coverdell education savings account or qualified tuition program (QTP). For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program.

Credit recapture.   If any tax-free educational assistance for the qualified education expenses paid in 2016 or any refund of your qualified education expenses paid in 2016 is received after you file your 2016 income tax return, you must recapture (repay) any excess credit. You do this by refiguring the amount of your adjusted qualified education expenses for 2016 by reducing that amount by the amount of the refund or tax-free educational assistance. You then refigure your education credit(s) for 2016 and figure the amount by which your 2016 tax liability would have increased if you had claimed the refigured credit(s). Include that amount as an additional tax for the year the refund or tax-free assistance was received.

Amounts that don't reduce qualified education expenses.   Don't reduce qualified education expenses by amounts paid with funds the student receives as:
  • Payment for services, such as wages;

  • A loan;

  • A gift;

  • An inheritance; or

  • A withdrawal from the student's personal savings.

  Don't reduce the qualified education expenses by any scholarship or fellowship grant reported as income on the student's tax return in the following situations.
  • The use of the money is restricted, by the terms of the scholarship or fellowship grant, to costs of attendance (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1 of Pub. 970.

  • The use of the money isn't restricted.

Expenses That Don't Qualify

Qualified education expenses don't include amounts paid for:

  • Insurance;

  • Medical expenses (including student health fees);

  • Room and board;

  • Transportation; or

  • Similar personal, living, or family expenses.

This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.

Sports, games, hobbies, and noncredit courses.   Qualified education expenses generally don't include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify.

Comprehensive or bundled fees.   Some eligible educational institutions combine all of their fees for an academic period into one amount. If you don't receive, or don't have access to, an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. The institution is generally required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. See Figuring the Deduction , later, for more information about Form 1098-T.

Who Is an Eligible Student?

For purposes of the tuition and fees deduction, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier).

Who Can Claim a Dependent's Expenses?

Generally, in order to claim the tuition and fees deduction for qualified education expenses for a dependent, you must:

  1. Have paid the expenses, and

  2. Claim an exemption for the student as a dependent.

For you to be able to deduct qualified education expenses for your dependent, you must claim an exemption for that individual. You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c.

Table 19-3. Who Can Claim a Dependent's Expenses

Don't rely on this table alone. Refer to the text for complete details.

IF your dependent is an eligible student and you... AND... THEN...
claim an exemption for your dependent you paid all qualified education expenses for your dependent only you can deduct the qualified education expenses that you paid. Your dependent can't take a deduction.
claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction.
don't claim an exemption for your dependent you paid all qualified education expenses no one is allowed to take a deduction.
don't claim an exemption for your dependent your dependent paid all qualified education expenses no one is allowed to take a deduction.

Expenses paid by dependent.   If your dependent pays qualified education expenses, no one can take a tuition and fees deduction for those expenses. Neither you nor your dependent can deduct the expenses. For purposes of the tuition and fees deduction, you aren't treated as paying any expenses actually paid by a dependent for whom you or anyone other than the dependent can claim an exemption. This rule applies even if you don't claim an exemption for your dependent on your tax return.

Expenses paid by you.   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring your tuition and fees deduction.

Expenses paid under divorce decree.   Qualified education expenses paid directly to an eligible educational institution for a student under a court-approved divorce decree are treated as paid by the student. Only the student would be eligible to take a tuition and fees deduction for that payment, and then only if no one else could claim an exemption for the student.

Expenses paid by others.   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. If you claim, or can claim, an exemption on your tax return for the student, you aren't considered to have paid the expenses and you can't deduct them. If the student isn't a dependent, only the student can deduct payments made directly to the institution for his or her expenses. If the student is your dependent, no one can deduct the payments.

Tuition reduction.   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1 of Pub 970.

Figuring the Deduction

The maximum tuition and fees deduction in 2016 is $4,000, $2,000, or $0, depending on the amount of your MAGI. See Effect of the Amount of Your Income on the Amount of Your Deduction , later.

Form 1098-T.   To help you figure your tuition and fees deduction, the student may receive Form 1098-T. Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2017. An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. However, the amount on Form 1098-T, boxes 1 and 2, might be different from what you paid. When figuring the deduction, use only the amounts you paid in 2016 for qualified education expenses.

  In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student.

  The eligible educational institution may ask for a completed Form W-9S or similar statement to obtain the student's name, address, and taxpayer identification number.

Effect of the Amount of Your Income on the Amount of Your Deduction

If your MAGI isn't more than $65,000 ($130,000 if you are married filing jointly), your maximum tuition and fees deduction is $4,000. If your MAGI is larger than $65,000 ($130,000 if you are married filing jointly), but isn't more than $80,000 ($160,000 if you are married filing jointly), your maximum deduction is $2,000. No tuition and fees deduction is allowed if your MAGI is larger than $80,000 ($160,000 if you are married filing jointly).

Modified adjusted gross income (MAGI).   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for tuition and fees. However, as discussed below, there may be other modifications.

MAGI when using Form 1040A.   If you file Form 1040A, your MAGI is the AGI on line 22 of that form, figured without taking into account any amount on line 19 (tuition and fees deduction).

MAGI when using Form 1040.   If you file Form 1040, your MAGI is the AGI on line 38 of that form, figured without taking into account any amount on line 34 (tuition and fees deduction) or line 35 (domestic production activities deduction), and modified by adding back any:
  1. Foreign earned income exclusion,

  2. Foreign housing exclusion,

  3. Foreign housing deduction,

  4. Exclusion of income by bona fide residents of American Samoa, and

  5. Exclusion of income by bona fide residents of Puerto Rico.

   Table 19-4 shows how the amount of your MAGI can affect your tuition and fees deduction.

  You can use Worksheet 6-1 in chapter 6 of Pub. 970 to figure your MAGI.

Table 19-4. Effect of MAGI on Maximum Tuition and Fees Deduction

IF your filing status is... AND your MAGI is... THEN your maximum tuition and fees deduction is...
single, head of household, or qualifying widow(er) not more than $65,000 $4,000.
more than $65,000 but not more than $80,000 $2,000.
more than $80,000 $0.
married filing joint return not more than $130,000 $4,000.
more than $130,000 but not more than $160,000 $2,000.
more than $160,000 $0.

Claiming the Deduction

You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A. Enter the deduction on Form 1040, line 34, or Form 1040A, line 19.

Educator Expenses

If you were an eligible educator in 2016, you can deduct up to $250 of qualified expenses you paid in 2016 as an adjustment to gross income on Form 1040, line 23, rather than as a miscellaneous itemized deduction. If you file Form 1040A, you can deduct these expenses on line 16. If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. However, neither spouse can deduct more than $250 of his or her qualified expenses.

Eligible educator.   An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in school for at least 900 hours during a school year.

Qualified expenses.   Qualified expenses include ordinary and necessary expenses paid in connection with books, supplies, equipment (including computer equipment, software, and services), and other materials used in the classroom. An ordinary expense is one that is common and accepted in your educational field. A necessary expense is one that is helpful and appropriate for your profession as an educator. An expense doesn’t have to be required to be considered necessary.

Note.

Beginning in 2016, qualified expenses also include those expenses you incur while participating in professional development courses related to the curriculum in which you provide instruction. It also includes those expenses related to those students for whom you provide that instruction.

  Qualified expenses don’t include expenses for home schooling or for nonathletic supplies for courses in health or physical education. You must reduce your qualified expenses by the following amounts.
  • Excludable U.S. series EE and I savings bond interest from Form 8815.

  • Nontaxable qualified state tuition program earnings.

  • Nontaxable earnings from Coverdell education savings accounts.

  • Any reimbursements you received for those expenses that weren’t reported to you on your Form W-2, box 1.

Educator expenses over limit.   If you were an educator in 2016 and you had qualified expenses that you can’t take as an adjustment to gross income, you can deduct the rest as an itemized deduction subject to the 2% limit.


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