Since 2002, many families have taken a deduction on their tax return for tuition and fees related to higher education. For tax year 2016, families could deduct up to $4,000 of these expenses “above the line,” which means they did not have to itemize deductions to deduct these expenses. The tax law allowing the deduction was not permanent. While it was extended many times since 2002, it effectively expired for tax years after 2016. Those holding out hope that the deduction would be part of the December 2017 Tax Cuts and Jobs Act were disappointed when it was not included as part of the bill, so many assumed the deduction was effectively “dead.”
However, on February 9, 2018 (coincidently just one week after Groundhog Day), the deduction came back once again through the Bipartisan Budget Act of 2018 retroactive to 2017! The IRS has yet to update Form 8917 (Tuition and Fees Deduction) and Line 34 of Form 1040 to allow you to report these expenses. Look for software updates to your tax software soon which will allow you to take the deduction. Note that this deduction has been resurrected only for 2017, so we will need to “wait and see” if it is extended for 2018 and later years.
There are limitations, however. The deduction is limited to $4,000 for taxpayers whose Adjusted Gross Income (AGI) doesn’t exceed $65,000 ($130,000 for joint filers) or $2,000 for taxpayers with an AGI that doesn’t exceed $80,000 ($160,000 for joint filers). Note also that you cannot take both a tax credit (American Opportunity Tax Credit or Lifetime Learning Credit) on the same $4,000 of college expenses upon which you take the deduction. Given the choice, the tax credits will save you more in tax dollars than the deduction.
Unfortunately, calculating the tax benefits available to families with college expenses is not for the faint of heart. Seek help from your CPA or a college financial adviser if you have questions.