| Publication 17 |
2008 Tax Year |
19.
Education- Related Adjustments
Income limits increased. If you are married and file a joint return, the amount of your student loan interest deduction for 2008 is gradually reduced
(phased out) if your modified adjusted gross income (MAGI) is between $115,000 and $145,000. You cannot take a deduction if
your MAGI is $145,000 or more. This is an increase from the 2007 limits of $110,000 and $140,000. See chapter 4 of Publication
970 for more information.
Students in Midwestern disaster areas. The definition of qualified education expenses for the tuition and fees deduction is expanded for students in Midwestern disaster
areas. See
Students in Midwestern disaster areas
, for more information.
This chapter discusses the education-related adjustments you can deduct in figuring your adjusted gross income.
This chapter covers:
Useful Items - You may want to see:
If you were an eligible educator in 2008, you can deduct up to $250 of qualified expenses you paid in 2008 as an adjustment
to gross income, rather than as a miscellaneous itemized deduction. 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 who worked
in a 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 does not have to be required to be considered necessary.
Qualified expenses do not 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.
-
Tax-free distribution of interest under an education savings bond program (Form 8815). See Figuring the Tax-Free Amount in chapter 10 of Publication 970.
-
Tax-free distribution of earnings from a qualified tuition program (QTP). See Figuring the Taxable Portion of a Distribution in chapter 8 of Publication 970.
-
Tax-free distribution of earnings from a Coverdell education savings account (ESA). See Figuring the Taxable Portion of a Distribution in chapter 7 of Publication 970.
-
Any reimbursements you received for these expenses that were not reported to you in box 1 of your Form W-2.
How the deduction is claimed.
To claim the deduction, enter the allowable amount on Form 1040, line 23, or Form 1040A, line 16.
Student Loan Interest Deduction
Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. However,
if your modified adjusted gross income (MAGI) is less than $70,000 ($145,000 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 in 2008. Table
19-1 summarizes the features of the student loan interest deduction.
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.
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 are not qualified student loans.
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 ($3,500 for 2008).
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 usually 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. In the case of an educational institution that uses credit hours or
clock hours and does not 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 Department of Education under the Higher Education
Act of 1965.
Related person.
You cannot 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 cannot 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 is not more than the greater of:
-
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
-
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 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 is not 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 fellowships). See chapter 4 of Publication 970 for details.
In addition to simple interest on the loan, certain loan origination fees, capitalized interest, interest on revolving lines
of credit, and interest on refinanced student loans can be student loan interest if all other requirements are met.
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 cannot deduct any interest paid on the refinanced loan.
Voluntary interest payments.
These are payments made on a qualified student loan during a period when interest payments are not required, such
as when the borrower has been granted a deferment or the loan has not yet entered repayment status.
Do Not Include as Interest
You cannot 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 are not 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 Publication 970.
Can You Claim the Deduction
Generally, you can claim the deduction if all four 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 Publication 970 for more information.
No Double Benefit Allowed
You cannot 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).
Your student loan interest deduction for 2008 is generally the smaller of:
However, the amount determined above is phased out (gradually reduced) if your MAGI is between $55,000 and $70,000 ($115,000
and $145,000 if you file a joint return). You cannot take a student loan interest deduction if your MAGI is $70,000 or more
($145,000 or more if you file a joint return). For details on figuring your MAGI, see chapter 4 of Publication 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 Publication 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 2008 on one or more qualified student loans must send Form 1098-E (or acceptable substitute)
to each borrower by February 2, 2009.
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 is not included on Form 1098-E, you can also
deduct those amounts. For information on allocating payments between interest and principal, see chapter 4 of Publication
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 cannot 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
What Expenses Qualify
.
The tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000.
Table 19-2 summarizes the features of the tuition and fees deduction.
You may be able to take a credit for your education expenses instead of a deduction. You can choose the one that will give
you the lower tax. See chapter 35, Education Credits, for details about the credits.
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.
-
You paid qualified education expenses of higher education.
-
You paid the education expenses for an eligible student.
-
The eligible student is yourself, your spouse, or your dependent for whom you claim an exemption (defined in chapter 3) on
your tax return.
Qualified education expenses are defined under
What Expenses Qualify
. Eligible students are defined later under
Who Is an Eligible Student
.
Who Cannot Claim the Deduction
You cannot 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 cannot take the deduction even
if the other person does not actually claim that exemption.
-
Your modified adjusted gross income (MAGI) is more than $80,000 ($160,000 if filing a joint return).
-
You were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes.
More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.
-
You or anyone else claims a Hope or lifetime learning credit in 2008 with respect to expenses of the student for whom the
qualified education expenses were paid.
The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or your dependent(s)
for whom you claim an exemption on your tax return. Generally, the deduction is allowed for qualified education expenses paid
in 2008 in connection with enrollment at an institution of higher education during 2008 or for an academic period (defined
earlier under
Student Loan Interest Deduction
) beginning in 2008 or in the first 3 months of 2009.
Payments with borrowed funds.
You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. You
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 payments 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 Department of Education. It includes virtually
all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational
institution should be able to tell you if it is an eligible educational institution.
Certain educational institutions located outside the United States also participate in the U.S. Department of Education's
Federal Student Aid (FSA) programs.
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.
Students in Midwestern disaster areas.
The definition of qualified education expenses is expanded for students in Midwestern disaster areas. In addition
to tuition and fees required for enrollment or attendance at an eligible educational institution, qualified education expenses
for students in Midwestern disaster areas include the following.
-
Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution
-
For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational
institution.
-
For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the
costs are not more than the greater of the following two amounts.
-
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.
-
The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
You will need to contact the eligible educational institution for qualified room and board costs.
No Double Benefit Allowed
You cannot 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 a Hope or lifetime
learning credit for that same student for 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 Figuring the Taxable Portion of a Distribution in chapter 7 (Coverdell ESA) and in chapter 8 (QTP) of Publication 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 Publication 970.
-
Deduct qualified education expenses that have been paid with tax-free scholarship, grant, or employer-provided educational
assistance. See the following section on
Adjustments to qualified education expenses
.
Adjustments to qualified education expenses.
If you pay qualified education expenses with certain tax-free funds, you cannot claim a deduction for those amounts.
You must reduce the qualified education expenses by the amount of any tax-free educational assistance and refunds you received.
Tax-free educational assistance.
-
The tax-free part of scholarships and fellowships (see chapter 1 of Publication 970),
-
Pell grants (see chapter 1 of Publication 970),
-
Employer-provided educational assistance (see chapter 11 of Publication 970),
-
Veterans' educational assistance (see chapter 1 of Publication 970), and
-
Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.
Refunds.
Qualified education expenses do not include expenses for which you, or someone else who paid qualified education expenses
on behalf of a student, receive a refund. (For information on expenses paid by a dependent student or third party, see
Who Can Claim a Dependent's Expenses
, later.)
If a refund of expenses paid in 2008 is received before you file your tax return for 2008, simply reduce the amount
of the expenses paid by the amount of the refund received. If the refund is received after you file your 2008 tax return,
see When Must the Deduction Be Repaid (Recaptured), in chapter 6 of Publication 970.
You are considered to receive a refund of expenses when an eligible educational institution refunds loan proceeds
to the lender on behalf of the borrower. Follow the above instructions according to when you are considered to receive the
refund.
Amounts that do not reduce qualified education expenses.
Do not 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.
Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's
tax return in the following situations.
-
The use of the money is restricted to costs of attendance (such as room and board) other than qualified education expenses.
-
The use of the money is not restricted and is used to pay education expenses that are not qualified (such as room and board).
Expenses That Do Not Qualify
Qualified education expenses do not include amounts paid for:
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 do not 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 do
not receive, or do not 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 required to make this
allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition
Statement. See
How Do You Figure 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 (defined earlier). The student must have either a high school diploma or a General Educational
Development (GED) credential.
Who Can Claim a Dependent's Expenses
Generally, to claim the tuition and fees deduction for qualified education expenses for a dependent, you must:
Table 19-3 summarizes who can claim the deduction.
The maximum tuition and fees deduction in 2008 is $4,000, $2,000, or $0, depending on the amount of your MAGI. For details
on figuring your MAGI, see chapter 6 of Publication 970.
How Do You Figure the Deduction
Figure the deduction using Form 8917.
To help you figure your tuition and fees deduction, you should receive Form 1098-T, Tuition Statement. Generally, an eligible
educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled
student by February 2, 2009.
To claim the deduction, enter the allowable amount on Form 1040, line 34, or Form 1040A, line 19, and attach your completed
Form 8917.
Previous | Index | Next
SEARCH:
You can search for information in the entire Tax Prep Help section, or in the entire site. For a more focused search, put your search word(s) in quotes.
Publication Index | Tax Prep Help Main | Home
|
|
 |
