33.12 Tuition and Fees Deduction
Caution: The deduction for tuition and fees expired at the end of 2011, and although an extension of the deduction to 2012 is expected, Congress had not yet passed the extension legislation when this book went to press. The following text assumes that there will be an extension, making the deduction available on 2012 returns. See the e-Supplement at jklasser.com for an update.
Depending on your income, you may be able to deduct up to $2,000 or $4,000 of qualifying higher education tuition and fees paid during 2012 on your 2012 return. The deduction is figured on Form 8917 and claimed directly from gross income on Form 1040, whether or not you itemize, or on Form 1040A.
You may not claim the deduction for expenses of a dependent for whom an American Opportunity credit or Lifetime Learning credit is claimed, even if the credit is claimed by someone else. You may not claim the credit for some of an eligible student’s expenses and the deduction for the balance. If you qualify for both, you must choose between the credit and the deduction. Generally, a credit provides a larger tax savings than a deduction, but if you would be allowed only a partial credit because of the income-based phaseout (33.8, 33.9), you may be able to obtain a larger tax benefit from the tuition and fees deduction.
Deduction amount based on income.
If you are single, head of household, or a qualifying widow(er), your maximum tuition and fees deduction is $4,000 if your 2012 modified adjusted gross income (MAGI) does not exceed $65,000, and your maximum deduction is $2,000 if your MAGI is over $65,000 but not more than $80,000. No deduction is allowed if your MAGI is over $80,000.
If you are married filing jointly, your maximum tuition and fees deduction is $4,000 if your MAGI is no more than $130,000, and your maximum deduction is $2,000 if MAGI exceeds $130,000 but is no more than $160,000. No deduction is allowed if MAGI exceeds $160,000.
For purposes of the deduction limitation, MAGI is generally the same as the AGI shown on your return, figured without taking into account the deduction for domestic production activities. You must add back to AGI any exclusion for foreign earned income or income from Puerto Rico or American Samoa, or the foreign housing exclusion or deduction.
Ineligible taxpayers.
You may not claim the deduction if you are married filing separately. You are also ineligible if you may be claimed as a dependent on another taxpayer’s return, whether or not you are actually so claimed.
Qualified higher education expenses.
Expenses eligible for the deduction are the same as those qualifying for the Lifetime Learning credit (33.9). That is, the deduction is generally limited to tuition and enrollment fees paid to an eligible educational institution for yourself, your spouse or your dependents. Student activity fees and course-related books, supplies and equipment are included only if they must be paid to the school as a condition of enrollment or attendance. Eligible expenses paid in 2012 for an academic period starting in 2012 or in the first three months of 2013 are deductible for 2012. Eligible educational institutions include any college, university, vocational school, or other postsecondary institution eligible to participate in the financial aid programs of the Department of Education.
Filing Tip
Claiming a dependent’s expenses.
You can deduct your dependent’s eligible expenses if you paid them and you claim an exemption for the dependent. You cannot claim the deduction for expenses paid by the dependent or by a third party on behalf of the dependent, even if you claim the exemption.
Deduction affected by excludable education benefits.
Expenses eligible for the deduction are reduced by tax-free scholarships (33.1) and other tax-free educational assistance. If you receive tax-free interest from an EE or I savings bond used for tuition (33.4), the excludable interest reduces the expenses eligible for the deduction. A tax-free distribution of earnings from a Coverdell ESA (33.12) or a QTP (33.6) reduces the deduction-eligible expenses.
Recapture of deduction.
If after you file your return on which the deduction was claimed you receive tax-free educational assistance for that year or receive a refund of an expense used to figure the deduction, you may have to repay (recapture) all or part of the original deduction. You recapture the deduction to the extent it gave you a tax benefit by reducing your tax. Refigure the original deduction by reducing it by the refunded amount and also refigure tax liability for that year. To the extent of the increase in tax liability, you must include the refunded amount in your income for the year you receive it.