What College Expenses Are Tax Deductible?

Making sense of the tax rules surrounding education expenses can get confusing, but it pays to know which deductions and credits you might qualify for if you have years of college to pay for. Here’s how the different tax breaks for education compare.

1. American Opportunity tax credit

If you’re enrolled at least half-time at a university and are pursuing a degree, you get up to $2,500 as an annual credit through the American Opportunity Tax Credit (AOTC).⁴

Here’s how it works:

1. Eligible filers receive 100% of the first $2,000 spent on education expenses.
2. They can get up to $500 more in credit if they spend $2,000 in additional educational expenses (credited at 25% after the first $2,000).
3. The potential total credit is $2,500.

The American Opportunity credit is partially refundable. If the credit brings your tax bill to $0, you can have 40% of the remaining value of the credit refunded to you, up to $1,000.

For instance, let’s say you qualified for the full $2,500 credit and had a tax bill of $500. Because you’d still have $2,000 of the credit left after satisfying your tax bill, so you’d get 40% of that amount – $800 – sent as part of your tax refund.

Here are some rules to know about claiming the credit.

• You can claim the AOTC for the first four years you spend in higher education. To be eligible, you must receive Form 1098-T (Tuition Statement) from a qualifying school.
• To claim the full credit, your modified adjusted gross income (MAGI) must be $80,000 or less, or $160,000 or less if you’re married and file a joint return.
• If your parents claim you as a dependent on their taxes, they can apply for the tax credit instead. Check with your parents to see if they plan to claim you as a dependent.
• Parents with more than one dependent student are eligible for multiple American opportunity tax credits each filing year.⁴

2. Lifetime learning credit

If you’re pursuing a degree or taking a certificate course, you can qualify for up to $2,000 in credits through the lifetime learning credit (LLC).⁵

Unlike the AOTC, there is no limit to how many years you can claim the LLC, so you can use it throughout your education. To qualify, you must take courses toward a degree or to improve your job skills at an eligible educational institution.

Eligibility for the lifetime learning credit – and the size of the tax credit – depends on your modified adjusted gross income.

• You can claim a full credit if your MAGI is under $80,000 ($160,000 for married couples filing a joint return).
• You can claim a partial credit if your MAGI is between $80,000 and $90,000 ($160,000 to $180,000 for married couples filing jointly).
• You can’t claim the credit if your MAGI is $90,000 or more ($180,000 or more if you’re filing jointly).⁵

Unlike the AOTC, the LLC is not refundable. If the LLC lowers your tax bill to $0, you won’t get any of the remaining credit sent to you.

Parents claiming a student as a dependent can only claim up to $2,000 in credits per year, even if they have multiple eligible dependent students.⁵

3. Student loan interest deduction

As mentioned, the IRS no longer offers a deduction for tuition and fees. However, if you took out qualified student loans to pay for school you can deduct the interest you paid on them.

Here’s how it works:

• You can deduct $2,500 or however much you paid in interest during the tax year on qualified education loans – whichever is less.
• You can qualify for this deduction if you paid interest on an eligible loan in the past year, you’re legally obligated to make payments on that loan, and your filing status isn’t married filing separately.⁶

The best part? The student loan interest deduction counts as an adjustment to income, so you can still claim this one even if you take the standard deduction.

Like other deductions and credits, you may be ineligible if your MAGI is too high. Filers get:

• The full deduction if they made less than $75,000 ($155,000 when filing jointly).
• A partial deduction if they made between $75,000 and $90,000 ($155,000 and $185,000 when filing jointly).
• No deduction if they made more than $90,000 ($185,000 when filing jointly).⁷

4. Educator expense deduction

If you’re a teacher or educator, you can write off up to $300 that you spent on business expenses and course materials such as books, supplies, athletic equipment (physical education teachers only), or computer equipment that you use in the classroom. The deduction doubles to $600 for married couples filing jointly if both are educators.⁸

As with any tax write-offs, there’s some fine print:

• The deduction is only for educators (teachers, principals, counselors, instructors, and student aides) working with kindergarten through 12th grade students. (Sorry, college professors.)
• Educators must have worked at least 900 hours during the tax year.⁸

5. Work-related education expense deduction

As mentioned, you may be able to deduct education expenses related to career advancement. Eligible students who can claim this deduction include:

• Armed Forces reservists
• Self-employed individuals
• Individuals with disabilities who have education expenses related to an impairment
• Qualified performing artists
• Fee-based state or local government officials⁹

This deduction comes with even more fine print than usual. If you plan to take this deduction, check out the IRS’s complete guidelines or work with a professional tax preparer to make sure you’re claiming it correctly.

6. 529 college savings plans

A 529 college savings plan offers multiple tax advantages, including tax-free growth and tax-free distributions when the money is used for higher education expenses for a qualified student. These plans are considered a parental asset for financial aid purposes. However, there’s one thing you won’t get at the federal level, and that’s a deduction or credit for making contributions.¹⁰

It’s possible, however, to take advantage of a state tax break if one is offered. Some states extend tax incentives to eligible savers who contribute to their plans. Depending on which plan you contribute to and where you live, you might be able to claim a deduction or credit for the amounts you put in when it’s time to handle your tax filing.

Here are a few things to know about 529 plans:

• All 50 states offer at least one.
• You can contribute to a 529 on behalf of any eligible student, which can include yourself, your spouse, your child, or another relative.
• You don’t necessarily need to live in a specific state to contribute to its 529 plan, but you may need to be a resident to claim tax benefits.
• The plan sets lifetime contribution limits and investment options.¹¹

Checking your plan’s guidelines and state tax laws can give you an idea of what you might qualify for.

7. Earned Income Tax Credit

For working college students and recent graduates, the Earned Income Tax Credit (EITC) is one of the most substantial tax benefits you can claim.  While not exclusively designed for students and recent grads, this tax credit helps individuals and families with low-to-moderate income levels.¹²

The EITC is refundable, so you can get the remaining amount after paying your tax bill refunded to you. For college students and young professionals, claiming the EITC can be a great way to get extra money.

What are the Earned Income Tax Credit thresholds, and how much can you get back? It depends on your filing status and how many dependents you have. Here are the most recent income limits.¹³

8. Coverdell Education Savings Account (ESA)

A Coverdell Education Savings Account (also referred to as an education IRA) offers an additional way to save for college on a tax-advantaged basis. You can open one of these accounts alongside a 529 college savings plan, or instead of one.

Here are some of the rules to know about ESAs:

• You can open them for an eligible student under the age of 18 and make annual contributions up to their 18th birthday.
• Contributions grow tax-deferred and qualified withdrawals are tax-free.
• All the money in the account must be withdrawn by the student’s 30th birthday to avoid a tax penalty.¹⁴
• The annual contribution limit is $2,000 per beneficiary.

There are no tax breaks for taxpayers who make Coverdell ESA contributions. However, using one to save for college could still be worth it if you want to make tax-free withdrawals to pay for school.