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Qualified Education Expenses

Tax Year 2012

Qualified education expenses are amounts paid for tuition and other certain related expenses required for the student’s enrollment or attendance at an eligible educational institution (bolded words defined below). The form of payment does not matter.

 

Certain adjustments to qualified education expenses may be required to determine the amount that can be used for either one of the credits.

 

See IRS Pub. 970, Tax Benefits for Education for more information and details.

 

The following definitions are applicable to the general rules above:

Required
Required is a very narrow concept for qualified education expenses. Student-activity fees and expenses for course-related books, supplies, and equipment are required only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.

 

The following expenses are not required unless they must be paid to the institution as a condition of enrollment or attendance:

  • Course-related books, supplies, equipment, and nonacademic activities, and
  • Any course or other education involving sports, games, or hobbies, unless such course or other education is part of the student’s degree program or (for the lifetime learning credit only) helps the student to acquire or improve job skills.

 

The following expenses are not required even if they must be paid to the institution as a condition of enrollment or attendance:

  • Room and board,
  • Insurance,
  • Medical expenses (including student health fees),
  • Transportation, and
  • Any other similar personal, living, or family expenses.

 

American Opportunity Credit Exception
The definition for qualified education expenses is expanded for this credit to include the costs of course-related books, supplies, and equipment even if it is purchased from a third party and not from the school.

Eligible Educational Institution
An eligible educational institution is generally any accredited public, nonprofit, or private college, university, vocational school, or other postsecondary institution. The institution must be eligible to participate in a student aid program administered by the U.S. Department of Education. Virtually all accredited postsecondary institutions meet this definition.
Adjustments to Qualified Education Expenses
The following items require an adjustment in the amount of qualified education expenses regardless of what was paid.

 

Tax-Free Educational Assistance
The taxpayer cannot claim a credit for expenses paid from tax-free funds. The taxpayer must reduce the amount of qualified education expenses by any tax-free educational assistance the taxpayer received.

 

The following are examples of tax-free educational assistance:

  • The tax-free portion of scholarships and fellowships,
  • Pell grants,
  • Employer-provided educational assistance,
  • Veterans' educational assistance, and
  • Any other nontaxable (tax-free) payments (other than gifts or inheritance) received as educational assistance.

 

Refunds of Qualified Expenses
Any refunds received for qualified education expenses paid cannot be included in the amount used to calculate the credit(s) and/or deduction. It does not matter who paid the expenses or who receives the refund, and whether that is the same person. A refund is considered to have been made when an educational institution refunds loan proceeds to a lender on behalf of the borrower.

 

If a refund is received after the tax year but before the tax return for that year is filed, simply subtract the amount of the refund from the qualified education expenses.

 

Amounts That Do Not Require an Adjustment
The following items do not require an adjustment to the amount of qualified education expenses:

  • Payment for services, such as wages,
  • A loan,
  • A gift,
  • An inheritance, or
  • A withdrawal from the student's personal savings
  • Scholarship or fellowship funds reported as income on the student's tax return and not used for qualified education expenses.

 

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