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Tax Deductions For Education

Lower Your Taxable Income With These Deductions

Did you know that there are tax deductions for education? In other words, you could save money on your taxes if you spent money on furthering your education. This is something that many people miss out on year after year. One of the main reasons for this is that people tend to turn to tax credits before tax deductions. When they don’t find any tax credits, they tend to give up and move on.

This article explains the education tax deductions that are allowed by the IRS.

Tax Deduction for Student Loan Interest

Individuals who paid interest on a qualified student loan may be able to deduct it on their 1040 tax return. The student loan interest deduction can lower your taxable income by up to $2,500. To qualify for this tax break, your modified adjusted gross income (MAGI) must be less than $80,000 (or $160,000 for married couples filing a joint return). Additionally, your student loan must have been obtained in order to pay for qualified education expenses. This tax deduction is taken as an adjustment to income (also called an above-the-line deduction), which means you can claim this deduction even if you don’t itemize deductions on Schedule A (Form 1040).

Qualified Student Loan

According to the IRS, a “qualified student loan” is a loan that you took out solely to pay qualified education expenses that were:

  • For you, your spouse, or a person who was your dependent when you took out the loan
  • Paid or incurred within a reasonable period of time before or after you took out the loan
  • For education provided during an academic period for an eligible student

RELATED: The Child Tax Credit

Qualified Education Expenses

According to the IRS, “qualified education expenses” are the total costs of attending an eligible educational institution (including graduate school). For the purposes of the student loan interest deduction, these expenses include amounts paid for the following items:

  • Tuition and fees
  • Room and board
  • Books, supplies, and equipment
  • Other necessary expenses (such as transportation)

For more information, see IRS Publication 970 (Tax Benefits for Education).

Business Deduction for Work-Related Education Expenses

The tax deduction for work-related education expenses has been suspended for tax years 2018-2025. This change was brought about by the Tax Cuts and Jobs Act (TCJA), which eliminated miscellaneous itemized deductions that were subject to the 2% AGI threshold. Prior to the TCJA, if you were an employee and you itemized deductions, you could claim a tax deduction for expenses that you paid for work-related education

There are exceptions for certain individuals who are still eligible to claim work-related education expenses as deductible business expenses. Note that he expenses must meet the requirements of “qualified work-related education” as defined by the IRS. Taxpayers who can still claim the deduction include:

  • Self-employed individuals – To claim this deduction, you must file Form 1040’s Schedule C (Profit or Loss From Business), Schedule C-EZ (Net Profit From Business), or Schedule F (Profit or Loss From Farming).
  • Qualified performing artists or fee-based state or local government officials – To claim this deduction, you must file Form 2106 (Employee Business Expenses).
  • Disabled individuals with impairment-related education expenses – To claim this deduction, you must itemize your deductions on Schedule A (Form 1040 or 1040NR).

For more information, see IRS Publication 970 (Tax Benefits for Education).

Tax Deduction for Tuition and Fees

The tuition and fees deduction expired at the end of 2017, which means you won’t be able to claim it on your 2018 tax return. Prior to its expiration, this tax deduction could lower your taxable income by up to $4,000 per student who’s enrolled in an eligible educational institution. IRS Form 8917 was used to calculate and claim the deduction for tuition and fees expenses. Note that you can still claim this deduction for 2017 if you paid qualified expenses to an eligible educational institution.

RELATED: Education Tax Breaks for Your Federal Return

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