Qualified education expenses: What you can (and can’t) claim on your taxes
This guide is for info purposes, not legal advice.
Always consult a tax pro for your specific case.
Higher education is expensive – but the IRS offers tax breaks to help offset the cost.
The key to maximizing your tax savings? – Understanding qualified education expenses (QEE).
Not all education expenses qualify for tax benefits, and using them incorrectly could lead to missed savings or even IRS penalties.
This guide breaks down what counts as a qualified education expense, what doesn’t, and how to claim the best tax benefits for your situation.
What are qualified education expenses?
Qualified education expenses (QEE) are costs directly related to attending an eligible postsecondary institution.
These expenses are essential for enrollment and are required to qualify for education tax credits, deductions, and savings plans like 529 plans and Coverdell ESAs.
What counts as a qualified education expense?
- Tuition and mandatory fees – Includes course enrollment fees required by the school.
- Books and course materials – Must be required for the class (self-help books don’t count!).
- Supplies and equipment – Items required by the school (e.g., lab equipment, calculators, art supplies for an art major).
- Computers and internet – If the school requires students to have one.
- Room and board – Only if the student is enrolled at least half-time and the cost does not exceed the school’s published cost of attendance for housing.
- Special needs services – Expenses for students with disabilities that are required for their education.
- 529 Plan withdrawals – K-12 tuition (up to $10,000 per year) and student loan repayment (up to $10,000 lifetime limit) are also eligible.
What expenses are NOT qualified?
- Room and board (if student is less than half-time
- Transportation & travel costs (gas, flights, parking, etc.)
- Health insurance & medical expenses (even if required by the school)
- Extracurricular activities (sports, clubs, fraternities, sororities)
- College application fees & admission tests
- Personal expenses (laundry, meals, dorm supplies, furniture)
Pro tip: If your school requires a certain item for coursework (like a software subscription or online textbook), it can be considered a qualified expense. When in doubt, check with your school or a tax professional.
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Tax benefits for education expenses
The IRS offers valuable tax credits to help offset the high costs of higher education. These credits directly reduce the amount of tax you owe (unlike deductions, which only lower your taxable income).
If you or your dependent paid for qualified education expenses, you may be eligible for one of two major tax credits:
- The American Opportunity Tax Credit (AOTC) – best for undergraduate students in their first four years.
- The Lifetime Learning Credit (LLC) – ideal for graduate students and working professionals taking job-related courses.
Key difference: The AOTC is partially refundable, meaning you can get up to $1,000 back even if you owe no taxes, while the LLC is non-refundable but applies to an unlimited number of years.
Let’s compare the two:
AOTC vs. LLC: Which one should you claim?
| Feature | American Opportunity Tax Credit (AOTC) | Lifetime Learning Credit (LLC) |
|---|---|---|
| Max credit per student | $2,500 | $2,000 |
| Refundable? | 40% refundable (up to $1,000) | Non-refundable |
| Income limits (2024) | $80K single / $160K married (phases out at $90K/$180K) | $80K single / $160K married (phases out at $90K/$180K) |
| Years allowed | 4 years of undergraduate education | Unlimited |
| Eligible expenses | Tuition, fees, books, supplies, equipment | Tuition, fees, books, supplies, equipment |
| Required enrollment | Must be at least half-time in degree program | No enrollment requirement |
Pro tip: If you qualify for both AOTC and LLC, you can only claim one per student per year – choose the one that gives you the highest benefit!
Can you deduct education expenses?
Unfortunately, the Tuition and Fees Deduction expired in 2020, so it is no longer available.
However, there is still one education-related deduction you can take advantage of:
Student loan interest deduction
If you’re paying off student loans, you can deduct up to $2,500 per year in student loan interest paid. This deduction is above-the-line, meaning you can claim it even if you don’t itemize deductions.
- Income limits (2024): Phases out at $90,000 (single) / $185,000 (married filing jointly)
- Loan must be for: You, your spouse, or your dependent
- Can’t claim if: You are claimed as a dependent on someone else’s return
How do scholarships and grants affect your education tax benefits?
Receiving scholarships and grants is great, but they can reduce the amount of education expenses you can claim for tax credits.
How to calculate your eligible education expenses
- Look at Form 1098-T – Schools issue this tax form with tuition payments (Box 1) and scholarships received (Box 5).
- Subtract scholarships from tuition – Only expenses not covered by scholarships are eligible for AOTC or LLC.
- Include books & supplies – Even if they’re not on the 1098-T, they may still qualify.
Example:
- Tuition: $10,000
- Scholarship received: $4,000
- Books & supplies: $1,000
- Eligible education expenses = $7,000 ($10,000 - $4,000 + $1,000)
How to claim education tax credits & deductions
- Gather documentation – Form 1098-T, receipts for books, supplies, and student loan interest.
- Use Form 8863 – Required to claim the AOTC or LLC on your tax return.
- Use Form 1040, Schedule 1 – To claim the student loan interest deduction.
- File electronically – The IRS processes e-filed returns faster and reduces the chance of errors.
Pro tip: If you missed claiming an education credit in past years, you can file an amended return (Form 1040-X) to get your refund!
Also read – What is Form 1040-X: Amended Tax Return?
Bottom line: Maximize your education tax savings
Understanding qualified education expenses can help you claim thousands of dollars in tax savings.
Whether you're a student, a parent, or someone paying off loans, knowing the right credits and deductions to claim is crucial.
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FAQ
Yes, but not for the same student. You can claim AOTC for one student and LLC for another if you have multiple students in your household.
No! Many foreign universities are eligible institutions for education tax credits. Check the Department of Education’s Federal School Code list to verify.
Yes! You can use up to $10,000 lifetime from a 529 plan to repay student loans.