Attending graduate school is way to get specialized training to boost your career prospects, but paying for more education after college can strain finances. The federal government offers a variety of tax breaks for higher education, including a tuition and fees deduction. The deduction lets you write off or subtract some of the cost of tuition from your taxable income to reduce the amount of tax you owe.
The tuition and fees deduction lets you reduce your taxable income by up to $4,000 paid to attend an institution of higher education. These include colleges, graduate schools or professional schools. However, any amount spent on tuition and fees beyond the $4,000 limit does not count as a tax write-off. You can claim the deduction for cash you spend on your own education or for tuition and fees you pay for your spouse or child.
The tax deduction for tuition and fees doesn't apply to all the expenses you might have while in grad school. According to the Internal Revenue Service, you can only deduct the cost of tuition, fees and course-related books and equipment if the fees and expenses have to be paid directly to the institution as a condition of enrollment or attendance. Expenses such as rent, food, insurance, transportation, medical bills don't qualify for the deduction.
You must meet certain eligibility requirements to qualify for the tuition and fees deduction. Your modified adjusted gross income has to be less than $80,000 as a single person or less than $160,000 as a married person filing a joint tax return. You can't claim the deduction if you are married and choose the "married filing separate" filing status. If someone else can claim you as a dependent on a tax return, you can't take the deduction. You may be considered a dependent if you don't pay for at least half of your own living expenses.
The IRS offers a student loan interest deduction in addition to the tuition and fees deduction. This deduction lets you subtract up to $2,500 of student loan interest you paid during the year from your taxable income. The interest deduction also counts for interest you pay on loans you take out to help finance the education of a spouse or dependent child.
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