Start with: the Form 1098-T, Tuition Statement (Most always, eligible education institutions provide to the student ... in Nebraska OUT OF SCOPE if not provided.)
Determine any scholarship or grant that are taxable to the STUDENT (see Pub 4012, Tab J-1 or Pub 17 Chapter 12).
Use the guidance in Pub 4012, ... to determine education credit. Generally on the parents return, not on student?
4. If there is scholarship income the tax payer will generally not qualify for an education credit.
Tax Topics - Topic 457 Tuition And Fees Deduction
Education Credits vs. Tuition & Fee Deduction
Taxpayers may be able to deduct qualified tuition and related expenses that they pay for themselves, their spouse, or a dependent, as a tuition and fees deduction. To determine whether the taxpayer expenses are qualified, refer to Publication 970, Tax Benefits for Education. Taxpayers do not have to itemize to take this deduction. Taxpayers can claim qualified tuition and fees as either:
(1) a tuition and fees deduction (Form 1040 line 34);
(2) an American Opportunity or Lifetime Learning credit (Form 1040 Line 49); or
(3) if applicable, a business expense (Schedule A). t
A taxpayer does not have to itemize to claim qualified tuition and fees unless taxpayer claim them as a business expense. If the taxpayer claims qualified tuition and fees as a tuition and fees deduction, the deduction is taken as an adjustment to income on Form 1040 line 34.
Click for full size: EdCreditChart.pdf
Tuition and Fee Deduction (Form 1040, line 34):
Taxpayers can take the tuition and fees deduction if:
· Filing status cannot be married filing separately,
· Taxpayer cannot be claimed as a dependent on someone else's return.
· The deduction is reduced or eliminated if the taxpayer modified adjusted gross income exceeds certain limits, that depend on taxpayer filing status.
If the educational expenses are also allowable as a business expense, the tuition and fees deduction may be claimed in conjunction with a business expense deduction, but the same expenses cannot be deducted twice. The taxpayer cannot claim a deduction or credit based on expenses paid with tax-free scholarship, fellowship, grant, or education savings account funds such as a Coverdell education savings account, tax-free savings bond interest or employer-provided education assistance. The same rule applies to expenses the taxpayer pay with a tax-exempt distribution from a qualified tuition plan, except that the taxpayer can deduct qualified expenses the taxpayer pays only with that part of the distribution that is a return of taxpayer contribution to the plan.
Education credit (Form 1040, line 49)
A taxpayer can take education credits for the taxpayer, spouse, and/or dependents (claimed on the tax return) who were enrolled at or attended an eligible post-secondary educational institution during the tax year.
• They cannot be claimed as a dependent on someone else’s tax return.
• They are not filing as Married Filing Separately.
• Their adjusted gross income (AGI) is below the limitations for their filing status.
• They were not nonresident aliens for any part of the tax year, or if they were, they elected to be treated as resident aliens.
The taxpayer must claim the dependent on the return to claim the credit for the student’s qualified expenses.
An eligible institution is any college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. The school should be able to tell the student if it is an eligible education institution. A searchable database of all accredited schools is available at http://ope.ed.gov/accreditation/.
Qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. However, for the American opportunity credit, the definition for “certain related expenses” is different. Review the Form 1098-T, Tuition Statement, issued by the school to identify the expenses that qualify for education credits.
Expenses that do not qualify
Do not include expenses such as:
• Room and board, insurance, medical expenses (including student health fees), transportation costs, or other similar personal, living, or family expenses
• Any course of instruction or other education involving sports, games, or hobbies, unless the course is part of the student’s degree program or (for the lifetime learning credit) helps the student to acquire or improve job skills
Amounts excluded from qualified expenses
Certain tax-free funds used to pay tuition must offset the credit. Once you have identified each person claiming a credit and their qualified expenses, ask if the student received any of these untaxed educational benefits during the year:
• Pell grants
• Employer-provided educational assistance
• Veterans’ educational assistance
• Tax-free portions of scholarships and fellowships
• Any other nontaxable payments received as educational assistance (other than gifts or inheritances)
• Refunds of the year’s qualified expenses paid on behalf of a student (e.g., the student dropped a class and received a refund of tuition)
Subtract the tax-free educational assistance, refunds, and benefits from the student’s qualified expenses. View the Interview Tips in the Volunteer Resource Guide (Tab G).
Form 1098-T from the educational institution
The form should show the amounts the student paid for tuition and related expenses, the amounts of scholarships and grants received, and whether the student was at least a half-time student or a graduate student. Verify with the taxpayer that the amount in Form 1098-T, box 1 or 2, is actually the amount paid in the current tax year for qualified expenses.
There are several differences between the two credits:
The American opportunity credit:
• Is permitted for the first four years of post-secondary education.
• Qualified tuition and related expenses include expenses for course materials—books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.
• Generally, 40% of the credit is a refundable credit, which means taxpayers can receive up to $1,000 even if they owe no taxes.
• The student was in the first four years of post-secondary study
• The student enrolled in 2010 in a program that leads to a degree, certificate, or other credential
• The student was taking at least one-half the normal full-time workload for the course of study, for at least one academic period beginning in 2010
• The student has not been convicted of a felony for possessing or distributing a controlled substance
Lifetime learning credit:
If the student does not meet all of the conditions for the American opportunity credit, the taxpayer may be able to take the lifetime learning credit for part or all of the student’s qualified expenses.