Publication 17 - Your Federal Income Tax (For Individuals)

Publication 17

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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 34, Education Credits, for details about the credits.

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The following rules will help you determine if you can claim the tuition and fees deduction.

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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 in 2012 for academic periods beginning in 2012 and those beginning in the first three months of 2013.
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.

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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 (or your spouse) were a nonresident alien for any part of 2012 and the nonresident alien 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 an American opportunity or lifetime learning credit in 2012 with respect to expenses of the student for whom the qualified education expenses were paid. However, a state tax credit will not disqualify you from claiming a tuition and fees deduction.

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Table 19-2. Tuition and Fees Deduction at a Glance
Do not rely on this table alone. Refer to the text for more details.

Question		Answer
What is the maximum benefit?		You can reduce your income subject to tax by up to $4,000.
Where is the deduction taken?		As an adjustment to income on Form 1040, line 34, or Form 1040A, line 19.
For whom must the expenses be paid?		A student enrolled in an eligible educational institution who is either: you, your spouse, or your dependent for whom you claim an exemption.
What tuition and fees are deductible?		Tuition and fees required for enrollment or attendance at an eligible postsecondary educational institution, but not including personal, living, or family expenses, such as room and board.

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The tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, the deduction is allowed for qualified education expenses paid in 2012 in connection with enrollment at an institution of higher education during 2012 or for an academic period (defined earlier under Student Loan Interest Deduction) beginning in 2012 or in the first 3 months of 2013.

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Payments with Borrowed Funds

You can claim a tuition and fees deduction for qualified education expenses paid with the proceeds of a loan. 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.

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Student Withdraws from class(es)

You can claim a tuition and fees deduction for qualified education expenses not refunded when a student withdraws.

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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.

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Postsecondary 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 U.S. 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.

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Academic Period

An academic period is any quarter, semester, trimester, or any other period of study as reasonably determined by an eligible educational institution. If an eligible educational institution uses credit hours and does not have academic terms, each payment period may be treated as an academic period.

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Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses for the tuition and fees deduction only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.

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Prepaid Expenses

Qualified education expenses paid in 2012 for an academic period that begins in the first three months of 2013 can be used in figuring the tuition and fees deduction. See Academic period, earlier. For example, if you pay $2,000 in December 2012 for qualified tuition for the 2013 winter quarter that begins in January 2013, you can use that $2,000 in figuring the tuition and fees deduction for 2012 only if you meet all the other requirements.

You cannot use any amount you paid in 2011 or 2013 to figure the qualified education expenses you use to figure your 2012 tuition and fees deduction.

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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 an American opportunity 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 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 educational assistance such as a scholarship, grant, or employer-provided educational assistance. See Adjustments to qualified education expenses, later.

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Adjustments to Qualified Education Expenses

For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. The result is the amount of adjusted qualified education expenses for each student.

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For tax-free educational assistance you received in 2012, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance to that academic period. See Academic period, earlier.

This includes:

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.

Generally, any scholarship or fellowship you receive is treated as tax-free educational assistance. However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent you include it in gross income (if you are required to file a tax return) for the year the scholarship or fellowship is received and either:

The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. 970, chapter 1.

The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. 970, chapter 1.

You may be able to increase the combined value of your tuition and fees deduction and certain educational assistance if you include some or all of the educational assistance in income in the year it is received. For details, see Adjustments to Qualified Education Expenses in chapter 6 of Pub. 970.

Some tax-free educational assistance received in 2012 may be treated as a refund of qualified education expenses paid in 2012. This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2012 for qualified education expenses paid on behalf of a student in 2012 (or attributable to enrollment at an eligible educational institution during 2012).

If this tax-free educational assistance is received after 2012 but before you file your 2012 income tax return, see Refunds received after 2012 but before your income tax return is filed, later. If this tax-free educational assistance is received after 2012 and after you file your 2012 income tax return, see Refunds received after 2012 and after your income tax return is filed, later.

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Federal Income Tax Refund

A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or may require you to include some or all of the refund in your gross income for the year the refund is received. See chapter 6 of Pub. 970 for more information. Some tax-free educational assistance received after 2012 may be treated as a refund. See Tax-free educational assistance, earlier.

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For each student, figure the adjusted qualified education expenses for 2012 by adding all the qualified education expenses paid in 2012 and subtracting any refunds of those expenses received from the eligible educational institution during 2012.

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If you receive a refund after 2012 of qualified education expenses you paid in 2012 and the refund is received before you file your 2012 income tax return, reduce the amount of qualified education expenses for 2012 by the amount of the refund.

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If you receive a refund after 2012 of qualified education expenses you paid in 2012 and the refund is received after you file your 2012 income tax return, you may need to include some or all of the refund in your gross income for the year the refund is received. See chapter 6 of Pub. 970 for more information.

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Coordination with Coverdell Education Savings Accounts and Qualified Tuition Programs (QTP)

Reduce your qualified education expenses by any qualified education expenses used to figure the exclusion from gross income of (a) interest received under an education savings bond program, or (b) any distribution from a Coverdell education savings account or 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.

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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, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses.
The use of the money is not restricted.

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Expenses That Do Not Qualify

Qualified education expenses do not include amounts paid for:

Insurance,
Medical expenses (including student health fees),
Room and board,
Transportation, or
Similar personal, living, or family expenses.

This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.

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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.

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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.

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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.

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Who Can Claim a Dependent's Expenses

Generally, in order to claim the tuition and fees deduction for qualified education expenses for a dependent, you must:

Have paid the expenses, and
Claim an exemption for the student as a dependent.

Table 19-3 summarizes who can claim the deduction.

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The maximum tuition and fees deduction in 2012 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.

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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 January 31, 2013.

To claim the deduction, enter the allowable amount on Form 1040, line 34, or Form 1040A, line 19, and attach your completed Form 8917.

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Table 19-3. Who Can Claim a Dependent's Expenses
Do not rely on this table alone. See Who Can Claim a Dependent's Expenses in chapter 6 of Publication 970.

IF your dependent is an eligible student and you...	AND...	THEN...
claim an exemption for your dependent	you paid all qualified education expenses for your dependent	only you can deduct the qualified education expenses that you paid. Your dependent cannot take a deduction.
claim an exemption for your dependent	your dependent paid all qualified education expenses	no one is allowed to take a deduction.
do not claim an exemption for your dependent, but are eligible to	you paid all qualified education expenses	no one is allowed to take a deduction.
do not claim an exemption for your dependent, but are eligible to	your dependent paid all qualified education expenses	no one is allowed to take a deduction.
are not eligible to claim an exemption for your dependent	you paid all qualified education expenses	only your dependent can deduct the amount you paid. The amount you paid is treated as a gift to your dependent.
are not eligible to claim an exemption for your dependent	your dependent paid all qualified education expenses	only your dependent can take a deduction.

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Tuition and Fees Deduction(p136)

Can You Claim the Deduction(p136)

Who Can Claim the Deduction(p136)

Who Cannot Claim the Deduction(p136)

What Expenses Qualify(p136)

Payments with borrowed funds.(p137)

Student withdraws from class(es).(p137)

Qualified Education Expenses(p137)

Eligible educational institution.(p137)

Academic period.(p137)

Related expenses.(p137)

Prepaid expenses.(p137)

No Double Benefit Allowed(p137)

Adjustments to qualified education expenses.(p137)

Refunds.(p137)

Coordination with Coverdell education savings accounts and qualified tuition programs.(p138)

Amounts that do not reduce qualified education expenses.(p138)

Expenses That Do Not Qualify(p138)

Sports, games, hobbies, and noncredit courses.(p138)

Comprehensive or bundled fees.(p138)

Who Is an Eligible Student(p138)

Who Can Claim a Dependent's Expenses(p138)

How Much Can You Deduct(p138)

How Do You Figure the Deduction(p138)