Income tax center

How about the above-the-line deduction for qualified tuition and related expenses?
Can I claim the deduction for expenses I pay using funds from my 529 account?

[Excerpts from Chapter 3 of The Best Way to Save for College – A Complete Guide to 529 Plans (2015-16 Edition)]

If you are eligible to claim the above-the-line deduction for up to $4,000 of qualified tuition and related expenses, the use of your 529 account may affect the amount of deduction you can claim. The earnings portion of a 529 distribution used to pay qualified tuition and related expenses will reduce the deductible amount. The IRS has not yet described how to allocate your 529 distributions between "qualified tuition and related expenses", which reduce the amount eligible for the deduction, and other qualified higher education expenses such as books and room and board that are eligible for Section 529 purposes but not for the tuition deduction.

An eligible taxpayer may claim an above-the-line deduction under Section 222 of the Internal Revenue Code for a limited amount of qualified tuition and related expenses. These are the same expenses that qualify for the American Opportunity and Lifetime Learning credits. However, the benefits are mutually exclusive: you may not claim a deduction for yourself or your dependent student in any year in which you or that student claim the American Opportunity or Lifetime Learning credit.

To be eligible for the deduction, you must not be a married individual filing separately or the dependent of another individual and your MAGI must be below a certain level. If your MAGI is $65,000 or less ($130,000 or less on a joint return), you may deduct up to $4,000 in qualified tuition and related expenses. If your MAGI exceeds $65,000/$130,000 but does not exceed $80,000 ($160,000 on a joint return), you may deduct up to $2,000 in qualified tuition and related expenses based on a phase-down formula. You must reduce your total qualified tuition and related expenses by the excluded earnings from 529 plan distributions, Coverdell ESA withdrawals, and qualified U.S. savings bond redemptions, which are used to pay for such expenses.

The tuition and fees deduction was extended in December of 2014 and is set to expire on December 31, 2016.

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