Splitting Education Expenses between Deduction and Credit

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jimbojones
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Splitting Education Expenses between Deduction and Credit

Post by jimbojones »

Say I had $23,000 in education expenses that were eligible for both the Business Deduction for Work-Related Education (itemized deduction) and the Lifetime Learning Credit (education credit). Could I apply $10,000 (maximum amount) to the Lifetime Learning Credit and $13,000 (the remainder) to the Business Deduction for Work-Related Education?
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jimbojones
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Re: Splitting Education Expenses between Deduction and Credi

Post by jimbojones »

Any insights? I couldn't find anything definitive in the IRS publications.
jebmke
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Re: Splitting Education Expenses between Deduction and Credi

Post by jebmke »

Pub 17, page 137

No Double Benefit Allowed

You cannot do any of the following.

Deduct qualified education expenses you deduct under any other provision of the law, for example, as a business expense.

Deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American opportunity or lifetime learning credit for that same student for the same year.

Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program. See Figuring the Taxable Portion of a Distribution in chapter 7 (Coverdell ESA) and chapter 8 (QTP) of Publication 970.

Deduct qualified education expenses that have been paid with tax-free interest on U.S. savings bonds (Form 8815). See Figuring the Tax-Free Amount in chapter 10 of Publication 970.

Deduct qualified education expenses that have been paid with tax-free educational assistance such as a scholarship, grant, or employer-provided educational assistance. See Adjustments to qualified education expenses, later.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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ObliviousInvestor
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Re: Splitting Education Expenses between Deduction and Credi

Post by ObliviousInvestor »

Are we sure that that statement from Pub 17 applies here? This sounds like the sort of thing where the kinda-sorta-correct wording that is sometimes found in publications might be a problem. Specifically, I'm wondering whether that statement was meant only to apply to the tuition and fees deduction granted via IRC 222 -- but was worded too broadly.

222(c)(2)(A) specifically states that the tuition and fees deduction cannot be claimed if a credit is claimed for the same student in the same year. But my understanding is that the business deduction for work related education expenses comes from IRC 162 (as a plain-old business expense, basically) via Treasury Reg 1.162-5. I don't see any specific statement in 162 or in that Regulation regarding an inability to claim the deduction when a credit is also claimed (as long as it's not the same expenses). Nor do I see anything in IRC 25A stating that the credit cannot be claimed if you're deducting (different) education expenses for the same student.

But maybe I'm missing something in those sections -- or elsewhere.
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jebmke
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Re: Splitting Education Expenses between Deduction and Credi

Post by jebmke »

You might be correct here. I read the OP too quickly and was thinking of the tuition deduction.

The biz deduction is a more rigorous test ("required by employer") and the 2% threshold applies (I think). Most situations I've seen in the past where employers require the education they also reimburse it somehow so I rarely see those. I had forgotten about that deduction.

Pub 970 is probably the most comprehensive of the pubs available on education expenses.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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jimbojones
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Re: Splitting Education Expenses between Deduction and Credi

Post by jimbojones »

From Tax Topic 513 Educational Expenses:

http://www.irs.gov/taxtopics/tc513.html
To be deductible, your expenses must be for education that (1) maintains or improves your job skills, or (2) is required by your employer or by law...

Although the education must relate to your present work, educational expenses incurred during temporary absence from your job may be deductible. However, after your temporary absence, you must return to the same kind of work. Usually, absence from work for one year or less is considered temporary.
The above quote describes my situation. I spent $23,000. Three deduction options as I see it:

$23,000 to Lifetime learning Credit: $2,000
$23,000 to Business Deduction for Work-Related Education (15% marginal tax rate with other business and itemized deductions included): $3,324
$10,000 to Lifetime Learning Credit + $13,000 to Business Deduction for Work-Related Education: $3,824

My question: is the third option valid?
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jimbojones
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Re: Splitting Education Expenses between Deduction and Credi

Post by jimbojones »

Any other opinions out there?
Sidney
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Re: Splitting Education Expenses between Deduction and Credi

Post by Sidney »

jimbojones wrote:Any other opinions out there?
Try calling the IRS. Be prepared for some waiting. They can be surprisingly helpful if you get to the right person. The trick is to craft your questions in a way to find out if the person you are talking to actually knows something on the topic. I have found that for some topics, you have to politely but persistently ask to speak to someone who has expertise in a matter. The good first responders don't object to handing off your call. Some might resist or take umbrage with the implication that they don't know the subject. In that case, call back and get someone else on the line.

In my time preparing returns, I have not seen combinations like the one described. But that doesn't mean it isn't correct.
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montesquieu
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Re: Splitting Education Expenses between Deduction and Credi

Post by montesquieu »

In my opinion, which is worth what you paid for it :D , you can claim both the credit and the itemized deduction (as long as you qualify for both and don't claim a double benefit).

From Pub. 970:
Also, your work-related education expenses may qualify you to claim more than one tax benefit. Generally, you may claim any number of benefits as long as you use different expenses to figure each one.
Sidney
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Re: Splitting Education Expenses between Deduction and Credi

Post by Sidney »

montesquieu wrote:In my opinion, which is worth what you paid for it :D , you can claim both the credit and the itemized deduction (as long as you qualify for both and don't claim a double benefit).

From Pub. 970:
Also, your work-related education expenses may qualify you to claim more than one tax benefit. Generally, you may claim any number of benefits as long as you use different expenses to figure each one.
The diagram is helpful.
http://www.irs.gov/publications/p970/25221v05.html

In a few cases I have seen the ability to classify as work related has broken down because the program was pursued by someone seeking a different job or was related to minimum job requirements.
I always wanted to be a procrastinator.
Bulgogi Head
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Re: Splitting Education Expenses between Deduction and Credit

Post by Bulgogi Head »

Old thread...but it applies to my current situation.

I have almost $30,000 in tuition that I paid for graduate school in 2017.

I meet the requirements to deduct tuition as a Business Deduction for Work-Related Education.

I would like to apply the maximum of $10,000 of my tuition to the Lifetime Learner's Credit, resulting in $2,000 tax credit.

I would like to deduct the remaining $20,000 in tuition as a business deduction for work-related education.

Would this be allowable?
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HueyLD
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Re: Splitting Education Expenses between Deduction and Credit

Post by HueyLD »

Yes you can as long as you don't use the same expense for both the credit and the business deduction.

Detail can be found in IRS Pub 970.
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