The above-the-line deduction for tuition and fees, one of the famous "extenders" that Congress has to reinstate every other year, is available for taxpayers whose income is too high to be able to claim a Lifetime Learning Credit.
If your AGI is $65,000 or less — or $130,000 or less on a joint return — you can claim a deduction of up to $4,000. For AGIs of between $65,001 and $80,000, or $131,001 and $160,000, the deduction is $2,000.
There is no phase out of the deduction. If you are filing a joint return and your AGI is $159,995, you can claim the $2,000. But if you have just $6 more you get nothing.
Since this is a deduction, the tax benefit depends on your bracket. Those claiming a $4,000 deduction will save $1,000 if they are in the 25% tax bracket.
But the savings is not limited to the actual deduction. Since it is above the line and reduces your AGI, it may increase the tax benefit from a variety of other deductions, exclusions and credits that are phased-out based on the level of income.
The deduction is available for tuition and fees required for enrollment or attendance at an accredited college, university, vocational school or other post-secondary institution. It is available for all undergraduate and graduate levels of education. There is no degree or workload requirement.
The deduction limits are per return, not per student. And qualified expenses must be reduced by tax-free scholarships, grants and other education assistance.
New Jersey tax pro Robert D. Flach has been preparing 1040s for individuals since 1972.