The tax deductibility of tuition
November 2, 2021

It’s no secret that going to college is a serious expense and although the tax deduction for college tuition and fees ended on December 31, 2020, there are still possible tax breaks available for some, including the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).

The AOTC allows for a reduction in your tax bill of up to $2,500 for a maximum of four years. As a refundable tax credit, it can increase your tax refund, even if it reduces your tax liability to a negative number.

To qualify for the reduction, independent students and parents must have paid for qualified education expenses, which include tuition for undergraduate classes. Income restrictions do apply, however. Your modified adjusted gross income can’t exceed $90,000 for an individual or $180,000 for a married couple.

When it comes to the LLC, things are somewhat different. This program is a nonrefundable tax credit, which means you can’t get a refund if the $2,500 credit would lower your tax liability to below zero. In many cases, your better choice is the AOTC. However, the LLC is good for those who have paid qualifying tuition and expenses for undergraduate, graduate and technical schools.

It is important to note that college graduates can still deduct the interest on their student loans and there is no requirement to itemize their tax return.

Lastly, training that you get to qualify you for a new career is not tax deductible. However, if the tuition is an “express requirement” from your employer as a condition to keep your job, it may qualify as a deduction. Alternatively, if it “improves or maintains” your employment skills, that cost could also meet the requirements for a tuition deduction.

If your child or loved one is planning to attend college, we recommend that you speak with one of our tax advisors as soon as possible to discuss how to manage the cost of a college education and which tax deductions you or your loved one may qualify for. Tax laws are ever-changing – especially since the onset of the pandemic. Let us help you understand that landscape as it applies to college expenses, so you can better navigate the cost of the college experience. Contact one of our tax advisors today!



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Diamond & Associates CPAs