It’s hard enough to watch your child leave for college. Now you also have to say goodbye to the tuition and fees tax deduction. Congress decided not to extend this $4,000 deduction for 2017, leaving many parents worried that college will now be more expensive.
But before you stress, Julie Strohlein, CPA advises this: “The deduction didn’t apply to everyone, anyway. Single taxpayers with an adjusted gross income over $80,000 (and married couples with AGI over $160,000) couldn’t take any deduction. If the AGI was between $65,000 and $80,000 (or between $130,000 and $160,000 for married couples), the deduction was cut in half to $2,000.
This was a tax deduction, not a credit, so the actual dollars lost depend upon a taxpayer’s tax rate. For example, a taxpayer in the 25% bracket will “lose” $1,000 in tax savings without this deduction.”
But it isn’t as bad as it sounds. That’s because Congress left in place two popular education credits that may offer a more valuable tax break:
“Tax credits are more valuable than deductions because credits reduce the amount of tax dollar for dollar, regardless of the taxpayer’s tax bracket,” explains Julie.
So who is affected by the loss of the tuition and fees deduction? If you are paying for your student’s graduate-level courses and are making too much to qualify for the Lifetime Learning Credit, the tuition and fees deduction is generally the only means you have to reduce your tax bill.
But there’s still hope! In addition to the two alternative education credits, there are many other tax benefits that help reduce the cost of education. There are breaks for employer-provided tuition assistance, deductions for student loan interest, tax-beneficial college savings options, and many other tax-planning alternatives.
“Saving for college with a 529 plan is a great way to reduce taxes by setting aside money in a special account that can grow tax-free,” Julie suggests. “The earnings are never taxable as long as the funds are used for qualified higher education expenses.”
Additional IRS Resources and Updates:
https://www.irs.gov/uac/tax-benefits-for-education-information-center
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