What Educational Expenses Are Deductible?

If your education meets the requirements described earlier under Qualifying Education, you can generally deduct your educational expenses. If you are not self-employed, you can deduct educational expenses only if you itemize your deductions.

You cannot deduct expenses related to tax-exempt and excluded income.

Deductible expenses. The following educational expenses can be deducted.

• Tuition, books, supplies, lab fees, and similar items.
• Certain transportation and travel costs.
• Other educational expenses, such as costs of research and typing when writing a paper as part of an educational program.

Nondeductible expenses. Educational expenses do not include personal or capital expenses. For example, you cannot deduct the dollar value of vacation time or annual leave you take to attend classes. This amount is a personal expense.

Unclaimed reimbursement. If you do not claim reimbursement that you are entitled to receive from your employer, you cannot deduct the expenses that apply to the reimbursement.

Example. Your employer agrees to pay your educational expenses if you file a voucher showing your expenses. You do not file a voucher, and you do not get reimbursed. Because you did not file a voucher, you cannot deduct the expenses on your tax return.

Transportation Expenses

If your education qualifies, you can deduct local transportation costs of going directly from work to school. If you are regularly employed and go to school on a temporary basis, you can also deduct the costs of returning from school to home.

Temporary basis. If your attendance at school is realistically expected to last (and does in fact last) for 1 year or less, you go to school on a temporary basis (unless there are facts and circumstances that would indicate otherwise).

If your attendance at school is realistically expected to last for more than 1 year or if there is no realistic expectation that the attendance will last for 1 year or less, the attendance is not temporary, regardless of whether it actually lasts for more than 1 year.

If attendance at school initially is realistically expected to last for 1 year or less, but at some later date the attendance is realistically expected to last more than 1 year, that attendance will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. It will not be treated as temporary after the date you determine it will last more than 1 year.

Attendance at school on a temporary basis was formerly defined as attendance on an irregular or short-term basis (generally a matter of days or weeks).

You can file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return, for any year in which you used the former definition of attendance on a temporary basis. However, you generally must file the amended return within 3 years from the time you filed the original return or within 2 years from the time you paid the tax, whichever is later.

Deductible expenses. If you are regularly employed and go directly from home to school on a temporary basis, you can deduct the round-trip costs of transportation between your home and school. This is true regardless of the location of the school, the distance traveled, or whether you attend school on nonwork days.

Transportation expenses include the actual costs of bus, subway, cab, or other fares, as well as the costs of using your car. Transportation expenses do not include amounts spent for travel, meals, or lodging while you are away from home overnight.

Example 1. You regularly work in Camden, New Jersey, and go directly from work to home. You also attend school every night for 3 months to take a course that improves your job skills. Since you are attending school on a temporary basis, you can deduct your daily round-trip transportation expenses in going between home and school. This is true regardless of the distance traveled.

Example 2. Assume the same facts as in Example 1 except that on certain nights you go directly from work to school and then home. You can deduct your transportation expenses from your regular work site to school and then home.

Example 3. Assume the same facts as in Example 1 except that you attend the school for 9 months on Saturdays, nonwork days. Since you are attending school on a temporary basis, you can deduct your round-trip transportation expenses in going between home and school.

Example 4. Assume the same facts as in Example 1 except that you attend classes twice a week for 15 months. Since your attendance in school is not considered temporary, you cannot deduct your transportation expenses in going between home and school. If you go directly from work to school, you can deduct the one-way transportation expenses of going from work to school. If you go from work to home to school and return home, your transportation expenses cannot be more than if you had gone directly from work to school.

Using your car. If you use your car (whether you own or lease it) for transportation to school, you can deduct your actual expenses or use the standard mileage rate to figure the amount you can deduct. The standard mileage rate for 2001 is 34 1/2 cents per mile. Whichever method you use, you can also deduct parking fees and tolls. See Car Expenses in chapter 28 for information on deducting your actual expenses of using a car.

Travel Expenses

You can deduct expenses for travel, meals (see 50% Limit, later), and lodging if:

1. You travel overnight to obtain qualified education, and
2. The main purpose of the trip is to attend a work-related course or seminar.

Travel expenses for qualifying education are treated the same as travel expenses for other employee business purposes. For more information, see chapter 28.

You cannot deduct expenses for personal activities, such as sightseeing, visiting, or entertaining.

Mainly personal travel. If your travel away from home is mainly personal, you cannot deduct all of your expenses for travel, meals, and lodging. You can deduct only your expenses for lodging and 50% of your expenses for meals during the time you attend the qualified educational activities.

Whether a trip's purpose is mainly personal or educational depends upon the facts and circumstances. An important factor is the comparison of time spent on personal activities with time spent on educational activities. If you spend more time on personal activities, the trip is considered mainly educational only if you can show a substantial nonpersonal reason for traveling to a particular location.

Example 1. John works in Newark, New Jersey. He traveled to Chicago to take a deductible 1-week course at the request of his employer. His main reason for going to Chicago was to take the course.

While there, he took a sightseeing trip, entertained some friends, and took a side trip to Pleasantville for a day.

Since the trip was mainly for business, he can deduct his round-trip airfare to Chicago. He cannot deduct his transportation expenses of going to Pleasantville. He can deduct only the meals (subject to the 50% limit) and lodging connected with his educational activities.

Example 2. Dave works in Nashville and recently traveled to California to take a 2-week seminar. The seminar is qualifying education.

While there, he spent an extra 8 weeks on personal activities. The facts, including the extra 8-week stay, show that his main purpose was to take a vacation.

He cannot deduct his round-trip airfare or his meals and lodging for the 8 weeks. He can deduct only his expenses for meals (subject to the 50% limit) and lodging for the 2 weeks he attended the seminar.

Cruises and conventions. Certain cruises and conventions offer seminars or courses as part of their itinerary. Even if the seminars or courses are work related, your deduction for travel may be limited. This applies to:

1. Travel by ocean liner, cruise ship, or other form of luxury water transportation, and
2. Conventions outside the North American area.

For a discussion of the limits on travel expense deductions that apply to cruises and conventions, see Luxury Water Travel and Conventions in Publication 463.

50% Limit

You can deduct only 50% of the cost of your qualifying meals while traveling away from home to obtain education. You cannot have been reimbursed for the meals.

Employees must use Form 2106 or Form 2106-EZ to apply the 50% limit.

Travel as Education

You cannot deduct the cost of travel as a form of education.

Example. You are a French language teacher. While on sabbatical leave granted for travel, you traveled through France to improve your knowledge of the French language. You chose your itinerary and most of your activities to improve your French language skills. You cannot deduct your travel expenses as educational expenses. This is true even if you spent most of your time learning French by visiting French schools and families, attending movies or plays, and engaging in similar activities.

Student Loan Interest Expense

You may be able to deduct interest you pay on a qualified student loan. If you qualify, you can take this deduction whether or not the education is work related and even if you do not itemize deductions on Schedule A (Form 1040). For more information on the deduction of student loan interest, see Publication 970.

Expenses Relating to Tax-Exempt and Excluded Income

Some educational assistance you receive may be tax-exempt or excluded from your income. Since you do not pay tax on this income, you may not be able to deduct the related expenses. Examples of tax-exempt or excluded income include scholarships, veterans' educational assistance, and the Education Savings Bond Program. If you received assistance from any of these sources, see Expenses Relating to Tax-Exempt and Excluded Income in Publication 508.

Employer-Provided Educational Assistance

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2. This also means that you do not have to include the benefits on your income tax return.

You must reduce your deductible educational expenses by the amount of any tax-free educational assistance benefits you received for those expenses.

Educational assistance program. To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.

Educational assistance. Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. The payments must be for undergraduate-level courses that begin before January 1, 2002. The payments do not have to be for work-related courses.

Beginning January 1, 2002, this benefit has been expanded to include both undergraduate and graduate-level courses.

Educational assistance benefits do not include payments for the following items.

1. Meals, lodging, transportation, or tools or supplies (other than textbooks) that you can keep after completing the course of instruction.
2. Education involving sports, games, or hobbies unless the education has a reasonable relationship to the business of your employer or is required as part of a degree program.
3. Graduate-level courses that are normally taken under a program leading to a law, business, medical, or other advanced academic or professional degree.

Benefit over $5,250. If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (box 1 of your Form W-2) the amount you must include in income.

Working condition fringe benefit. However, if the payments also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense.

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