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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121585  
Subject: Is tuition deductible? Date: 10/10/2000 3:43 PM
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OK, I've read through the tax area of TMF and I even read through IRS pub 508, and I still can't tell whether my educational expenses might be deductible. Here's the story:

My wife and I are both pursuing graduate degrees. My wife is pursuing an M Ed. in counseling psychology and I am pursuing an MBA. My wife is currently working as a career counselor at a college and I am a business researcher at a consulting firm. Neither of us qualify under the definition of being required to get these degrees by our employers. However, I can't tell whether or not we would qualify to deduct our expenses under the definition of "maintaining and improving skills." Any suggestions?
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Author: Monkeylawyer Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40749 of 121585
Subject: Re: Is tuition deductible? Date: 10/10/2000 4:42 PM
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<I can't tell whether or not we would qualify to deduct our [education] expenses under the definition of "maintaining and improving skills." Any suggestions? >



Some background that your question shows you know already (but others may not): Treasury Regulation 1.162-5 "Expenses for Education" (paraphrasing): Expenditures made by an individual for education that are NOT 1) expenses to acquire education required to meet the minimum educational requirements for qualification in the individual's trade or business, or 2) expenses to acquire education that is part of a program of study that will qualify the individual in a new trade or business, are deductible if 1) the education "maintains or improves skills required by the individual in his employment or other trade or business," or 2) the education is required by the individual's employer.

It looks like you and your wife can deduct the expenses incurred in getting your degrees (because the "maintains or improves skills" language is broad enough to encompass this situatiuon) unless the degree would qualify you for a new trade or business.

I don't think that either of the degrees qualify either of you for a new trade or business. Usually only degrees that are closely related to a trade or business (like an M.D. or J.D.) meet that requirement (where "usually" means "almost all the time but I don't want to commit to such a strong position").

An example given in the Reg: "C, while engaged in the private practice of psychiatry, undertakes a program of study and training at an accredited psychoanalytic institute which will lead to qualifying him to practice psychoanalysis. C's expenditures for such study and training are deductible because the study and training maintains or improves skills required by him in his trade or business and does not qualify him for a new trade or business." The situations of both you and your wife sound remarkably similar to our friend C.

Happy deducting!!




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Author: mattjones75 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40751 of 121585
Subject: Re: Is tuition deductible? Date: 10/10/2000 5:12 PM
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wait a second,
so, if one meets the given requirements then one could deduct the educational expenses, take advantage of the Lifetime Learning Credit, and deduct student loan interest payments? help, matt

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40759 of 121585
Subject: Re: Is tuition deductible? Date: 10/10/2000 7:17 PM
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so, if one meets the given requirements then one could deduct the educational expenses, take advantage of the Lifetime Learning Credit, and deduct student loan interest payments?

Nice try, but no. The loan interest payments stand by themselves. However, you cannot deduct education expenses on Schedule A and claim the Lifetime Learning Credit based on the same expenses. See IRS Publication 970.

TMF ExRO
Phil Marti

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Author: jkrou Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40784 of 121585
Subject: Re: Is tuition deductible? Date: 10/11/2000 1:38 PM
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Phil,
you write:
Nice try, but no. The loan interest payments stand by themselves. However, you cannot deduct education expenses on Schedule A and claim the Lifetime Learning Credit based on the same expenses. See IRS Publication 970.

New question:
The loan interest stays. Then what if you are going to an expensive school, take the Lifetime Credit with their $10k in expenses, and still have more expenses left over? Can you know take this remaining amount to the Schedule A?

I am glad that someone asked, because I have been toying and reading about the same thing. By Pub 970, it is not clear if you can use the remaining amount above $10 expenses to the Sched A.

Thanks,
Jenn

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40793 of 121585
Subject: Re: Is tuition deductible? Date: 10/12/2000 2:19 AM
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Then what if you are going to an expensive school, take the Lifetime Credit with their $10k in expenses, and still have more expenses left over? Can you know take this remaining amount to the Schedule A?

You can take both. The applicable provision is Code section 25A(g)(5).

Unlike the provision that says one student can be eligible for either the Hope or Lifetime Learning credit but not both, this provision says that expenses deducted from income cannot be used as the basis for the credit. Thus you could use the first $5,000 in expenses (the LLC limit) as the basis for LLC and deduct the balance as employee educational expenses on Schedule A.

TMF ExRO
Phil Marti

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Author: jkrou Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40798 of 121585
Subject: Re: Is tuition deductible? Date: 10/12/2000 9:25 AM
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Perfect, thanks Phil. I had not come across that part of the code but knew it had to be there somewhere.

Jenn

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