Page 77 - Family Law Services

proves skills used in an existing occupation. The deduction is not available to taxpayers who file married
filing separately.

Student Loan Interest Deduction

Under the student loan interest deduction, IRC Section 221, eligible taxpayers may deduct the lesser of
$2,500 or the amount of interest actually paid on qualified education loans for college or vocational
school. The deduction of these expenses is an adjustment to income (above the line). A qualified loan
includes loans for tuition, fees, room and board, books, equipment, and transportation if paid to cover at-
tendance at an eligible institution. The following conditions apply:

• The interest must be paid on a qualified student loan.

• The taxpayer must be legally obligated to pay the interest.

• Filing status may not be married filing separately.

• Subject to limitations of the taxpayer’s adjusted gross income.

Qualified Tuition Programs

Under IRC Section 529, a qualified tuition program may be set up to allow a taxpayer to make contribu-
tions to be used for qualified education. The contributions are not deductible, however, if the funds are
allowed to grow tax free, and the distributions are excluded from income if used to pay qualified educa-
tion expenses.

These programs can be administered by private institutions and can be accomplished in two ways:

• Prepaid programs. Contributions are used to prepay tuition for a designated student.

• Savings account plans. Contributions are made to an account set up to pay the higher education
costs of a student.

Some states offer tax credits or deductions for contributions to 529 plans in that particular state.

Under TCJA, Qualified expenses now include elementary and secondary education expenses. Distribu-
tions for elementary and secondary education expenses are limited to $10,000 per year, per student. Any
distributions above $10,000 are treated as excess distributions and subject to tax and penalty.

Qualified education expenses modified to now include expenses related to homeschooling.

Qualified expenses include the following:

• Curriculum and curricular materials

• Books or other instructional materials

• Online educational materials

• Tuition for tutoring or educational classes outside of the home (tutor cannot be related to the stu-
dent)

© 2020 Association of International Certified Professional Accountants 75