About Student Loan Tax Deductions and Education Credits

Earned income includes the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship grant. If you and your child choose to apply the Pell grant to the qualified education expenses, it will qualify as a tax-free scholarship under the rules discussed in chapter 1 of Pub. Your child won’t include any part of the Pell grant in gross income.

Can I file form 8863 online with TurboTax?

Use the 1098-T section even if you don’t have a 1098-T, all education expenses go there anyway. Enter the student’s adjusted qualified education expenses on line 31. Use the Adjusted Qualified Education Expenses Worksheet next to figure each student’s adjusted qualified education expenses. Enter the total of all amounts from Part III, line 31, on Part II, line 10. You must complete Part III for each student for whom you’re claiming either the American opportunity credit or lifetime learning credit before you complete either Part I or Part II.

Is This Deductible? Going Back to School

Also, the scholarship or fellowship grant must be one that may (by its terms) be used for expenses other than qualified education expenses (such as room and board). For each student, figure the adjusted qualified education expenses for 2023 by adding all the qualified education expenses paid in 2023 and subtracting any refunds of those expenses received from the eligible educational institution during 2023. Generally, qualified education expenses are amounts paid in 2023 for tuition and fees required for the student’s enrollment or attendance at an eligible educational institution.

Not sure which deductions or credits to take?

If you plan on claiming one of the IRS educational tax credits, be sure to fill out a Form 8863 and attach it to your tax return. These credits can provide a dollar-for-dollar reduction in the amount of tax you owe at the end of the year for the costs you incur to attend school. Before preparing the form, however, make sure that you satisfy the requirements of an eligible student.

Enter the total of all amounts from all Parts III, line 30, on Part I, line 1. If you’re claiming the lifetime learning credit for more than one student, add the amounts from each student’s Part III, line 31, and enter the total for all those students on line 10. You cannot use any amount you paid in 2022 or 2024 to figure the qualified education expenses you use to figure your 2023 education credit(s).

• Education tax credits cover common student expenses and can reduce your tax bill on a dollar-for-dollar basis if you are eligible. However, if capital isn’t an income-producing factor and your personal services produced the business income, the 30% limit doesn’t apply. If you’re not otherwise required to file a tax return, you should file to get a refund of your $1,000 refundable credit, but your tax liability and nonrefundable credit will be $0. Your child has $5,000 of qualified education expenses and $4,000 of room and board. Your child received a $5,000 Pell grant and took out a $2,750 student loan to pay these expenses. The Pell grant by its terms may be used for any of these expenses.

Therefore, you’re treated as having paid expenses that were paid by the third party. For more information and an example, see Who Can Claim a Dependent’s Expenses in Pub. If a student is claimed as a dependent on another person’s tax return, all qualified education expenses of the student are treated as having been paid by that person.

If you or the student takes a deduction for higher education expenses, such as on Schedule C (Form 1040), you cannot use those same expenses in your qualified education expenses when figuring your education credits. However, fees for personal expenses (described below) are never qualified education expenses. This credit provides more flexibility, as it only requires the student be enrolled in at least one course during the tax year. The course need not be part of a degree program; taking just one course to enhance job skills qualifies you to claim the credit.

Therefore, only that person can claim an education credit for the student. If a student isn’t claimed as a dependent on another person’s tax return, only the student can claim the credit. The amount of qualified tuition and related expenses reported on Form 1098-T may not reflect the total amount of the qualified tuition and related expenses paid during the year for which you may claim an education tax credit.

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If anyone receives a refund after 2023 of qualified education expenses paid on behalf of a student in 2023 and the refund is received after you file your 2023 income tax return, you may need to repay some or all of the credit that you claimed. Use Form 8863 to figure and claim your education credits, which are based on adjusted qualified education expenses paid to an eligible educational institution (postsecondary). Some tax-free educational assistance received after 2023 may be treated as a refund of qualified education expenses paid in 2023. You may be able to increase an education credit and reduce your total tax or increase your tax refund if the student (you, your spouse, or your dependent) chooses to include all or part of certain scholarships or fellowship grants in income. The scholarship or fellowship grant must be one that may qualify as a tax-free scholarship under the rules discussed in chapter 1 of Pub.

Both of these credits have different rules that can affect your eligibility to claim a specific credit. Remember, with TurboTax, we’ll ask you simple questions and form 8863 turbotax fill out the right forms for you, based on your answers. Last year, the IRS issued  9 out of 10 refunds in 21 days or less  and expects the same results this year.

If you pay $15,000 in tuition, your credit will equal $2,000 because of the $10,000 limit on qualifying educational expenses. It may take up to 9 weeks to receive your refund or credit any overpayment to your account. However, if we find other problems, we’ll contact you again and this may delay your refund.

If you claim either of the tax credits, the IRS requires you to fill out Form 8863 and attach it to your tax return. Form 8863 requires you to calculate the appropriate credit amount based on your eligible school expenses. In order to claim the tax credit for yourself, you cannot be claimed as a dependent on a different taxpayer’s tax return.

  1. Your AGI is essentially all gross income minus certain deductions such as moving expenses, IRA and health savings account contributions, alimony payments, student loan interest and educator expenses.
  2. You may be able to increase an education credit and reduce your total tax or increase your tax refund if the student (you, your spouse, or your dependent) chooses to include all or part of certain scholarships or fellowship grants in income.
  3. You can only deduct the interest on student loans you actually used to pay school-related expenses, including your room and board.
  4. Generally, qualified education expenses are amounts paid in 2023 for tuition and fees required for the student’s enrollment or attendance at an eligible educational institution.
  5. For tax-free educational assistance received in 2023, reduce the qualified education expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period.

After reducing qualified education expenses by the tax-free scholarship, you will have $0 ($5,000 − $5,000) of adjusted qualified education expenses available to figure your credit. Qualified education expenses paid in 2023 for an academic period that begins in the first 3 months of 2024 can be used in figuring an education credit for 2023 only. For example, if you pay $2,000 in December 2023 for qualified tuition for the 2024 winter quarter that begins in January 2024, you can use that $2,000 in figuring an education credit for 2023 only (if https://turbo-tax.org/ you meet all the other requirements). A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. Some tax-free educational assistance received after 2023 may be treated as a refund. Any qualified expenses used to figure the education credits cannot be taken into account in determining the amount of a distribution from a Coverdell ESA or a qualified tuition program (section 529 plan) that is excluded from gross income.

A refundable credit can give you a refund when the credit is more than the tax you owe, even if you aren’t required to file a tax return. A nonrefundable credit can reduce your tax, but any excess isn’t refunded to you. For any tax year that you claim either of the tax credits above, the IRS requires you to prepare a Form 8863 and submit it with your personal income tax return. A Form 1040 return with limited credits is one that’s filed using IRS Form 1040 only (with the exception of the specific covered situations described below).

My previous year’s (2018) 1098t had box 7 checked, but the line on form 8863 is checked no.  I have even started a fresh return just to get the same result. Currently filing through the IRS Free File turbo tax version. I know that I qualify for the Lifelong Learning Credit, so I need to fill out Form 8863.

You must complete a separate Part III on page 2 for each individual for whom you’re claiming either credit before you complete Parts I and II. Tax-free educational assistance treated as a refund. Coordination with Pell grants and other scholarships or fellowship grants. If you haven’t been issued a TIN by the due date of your 2023 return (including extensions), you can’t claim the American opportunity credit on either your original or an amended 2023 return.

My student has NOT already completed 4 years of college. Form 8863 is still there, including all of its data. I repeated the process three times, but in each case nothing happened and the form was not removed. Next, I go to the “Forms” drop-down menu at the very top of the screen, and select “Remove form 8863” from the list.

To fill out Form 8863, complete the education section by answering the interview questions. While providing your answers, TurboTax will automatically be filling out Form 8863 and checking for deductions and credits you may qualify for. The Lifetime Learning credit can reduce your tax liability by up to $2,000 per tax return for the cost of enrollment in a post-secondary school. The expense of books and other supplies are not covered by this credit unless the school requires it as a condition of enrollment and you pay the school directly for these items. • The American Opportunity Credit can reduce your tax liability by up to $2,500 per student for qualified educational expenses incurred during the first four years of post-secondary schooling.

Also, the American opportunity credit isn’t allowed on either your original or an amended 2023 return for a student who hasn’t been issued a TIN by the due date of your 2023 return (including extensions). If you claim the American opportunity credit even though you’re not eligible, you may be banned from claiming the credit depending on your conduct. See the Caution statement under American Opportunity Credit, later. The IRS announced today that they will not be able to process tax returns with Form 8863 until mid-February. This is a delay that will impact all tax preparation methods. You cannot claim a credit if you are, or can be, claimed as a dependent by someone else.

• The cost of books and other supplies are not covered by the Lifetime Learning Credit unless the school requires their purchase as a condition of enrollment and you pay the school directly for these items. Again, my ultimate goal is to change the yes/no checkbox on line 25 on Form 8863 from “Yes” to “No.” I selected form 8863 in the in the left-hand pane. Go into Forms mode by clicking the Forms icon in the upper right hand corner of the TurboTax screen. You should see a list of all your forms on the left side of the screen now.

MAGI is based on your Adjusted Gross Income (AGI). Your AGI is essentially all gross income minus certain deductions such as moving expenses, IRA and health savings account contributions, alimony payments, student loan interest and educator expenses. For most taxpayers, MAGI is equal to the AGI you calculate on the first page of Form 1040. However, taxpayers who live and work abroad must increase AGI by the amount of foreign earned income and housing they exclude from taxable income to arrive at MAGI. Find out more about these tax credits and how you may benefit from them.

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