New education tax provisions are available this year

Over the past 15 months, Congress passed several pieces of legislation containing a variety of new tax provisions, including some tax breaks for education expenses.

Taxpayers must have Form 1098-T in order to claim education credits or tuition deductions. Generally, educational institutions are required to provide Form 1098-T to students and file a copy of Form 1098-T with the IRS. This form contains information regarding the student’s qualifying tuition and related fees that are used to determine various education-related tax credits and deductions. Effective for tax years beginning after June 29, 2015, the Trade Act provides that the following education tax breaks will not be allowed unless the taxpayer possesses a valid Form 1098-T from the educational institution:

  • The American Opportunity Tax Credit (up to $2,500 per qualifying student  – generally used for the first four years of post-high school education);
  • The Lifetime Learning Credit (up to $2,000 per qualifying taxpayer –  generally used for graduate school), and
  • The college Tuition and Fees Deduction (up to $4,000).

This new documentation requirement means that if you are claiming any of these education tax benefits, you will need Form 1098-T before you can claim an education credit or deduction on your 2016 return.
While the American Opportunity Tax Credit, as well as the Lifetime Learning Credit, is now permanent, the Tuition and Fees Deduction of up to $4,000 is scheduled to expire after 2016.