About education tax credits and other college tax tips

What college expenses are tax deductible?

The two most popular tax benefits are the American Opportunity Tax Credit and the Lifetime Learning Tax Credit.

• The American Opportunity Credit: If you’re eligible, this is $2,500 credit is for full-time students during the first four years of undergraduate college. If you paid qualified tuition and fees during the year, you should receive a Form 1098-T, Tuition Statement, from the entity to which you paid the tuition. 
• The Lifetime Learning Credit. You could get up to $2,000 a year for other courses that typically don't qualify for the American Opportunity Tax Credit.
• Student loan deduction. On some types of student loans, you may also qualify to deduct up to $2,500 of your student loan interest. There are income (MAGI) requirements for full or partial deduction, generally under $100,000 if you file as Single, or $205,000 if you’re Married Filing Jointly. If you paid $600 or more of interest on a qualified student loan during the year, you should receive a Form 1098-E, Student Loan Interest Statement, from the entity to which you paid the student loan interest.
  This deduction is not available for taxpayers filing using the married filing separately status.

Is college tuition tax deductible?

Unfortunately, no. The Tuition and Fees Deduction expired December 31, 2020.

Are college application fees tax deductible?

You cannot deduct your college application fees. But you may be able to deduct other costs. Keep reading.

Are there any other college tax education tax deductions?

You may also be able to consider fees for the education credits including, enrollment fees, required course materials, equipment, and books for eligible taxpayers.

Are there other tax-free ways to pay for college? 

Even before college, you can put money in an investment account specifically designed for college costs. With a 529 plan, your contributions grow tax-free and later be withdrawn tax-free if you spend it on eligible education expenses. It is also a very good idea to look at grants and scholarships and education savings bonds and other benefits for college savings and investments that you could qualify for.  

What are the most important things to consider when planning to pay for a higher education?

A smart thing to do is to start saving early. Check out the IRS publication 970, known as Tax Benefits for Education. It's a handy 80-page document to help you understand college expenses and the related tax benefits. Some tax benefits and savings kick in when you actually pay the money, and some provide benefits years in advance through savings and tax-free earnings. Some require application for grants and scholarships and loans and forgiveness programs.

Who qualifies for the education tax credits?

It depends. While there are many tax breaks and credits a word of caution: There are some limits and restrictions, some based on income and some based on whether the taxpayer or the student paid the expenses. But don't worry, there are some great lesser-known rules, too, if a relative like a grandparent or aunt pays for a college expense. The college student can use those expenses on their tax return, even if they didn't pay directly and the relative made the payment. Plus, you get to pick the tax benefit that gives you the biggest overall best results.

This is also important to know: that there's no double dipping. You will not have a deduction and a tax credit or multiple credits for the same expense.

Remember, start planning early and find out as many money savings opportunities as you can, but as important as saving, start learning the rules and options. There's a lot to know and many choices to make but the payoff for tax breaks can really help pay for college and lower your taxes. Certainly, reach out to your Jackson Hewitt Tax Pro if you have questions.

About the Author

Mark Steber is Senior Vice President and Chief Tax Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

More about Mark Steber Our Editorial Policy