Qualified education expenses: What you can (and can’t) claim on your taxes
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’ means different things depending on the tax break. For education credits (AOTC/LLC), it usually means tuition and required fees (and for AOTC, some course materials).
For 529/Coverdell tax-free withdrawals, the list is broader and can include things like room and board (if the student is at least half-time) and certain computer/internet costs. Always match the expense list to the specific benefit you’re claiming.
These expenses are essential for enrollment and are required to qualify for education tax credits, deductions, and savings plans like 529 College Savings Plans and Coverdell ESAs.
Certain states allow contributions to 529 College Savings Plans made in the first few months of the year to count toward state tax deductions for the previous year. State 529 tax breaks vary. Most states require contributions by December 31 to claim a state deduction/credit for that tax year, but some states allow contributions until a spring deadline (often around the state tax filing deadline). Always confirm the deadline for your state before you contribute.
What counts as a qualified education expense?
For 529 plans (tax-free withdrawals), qualified expenses include:
- 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.
For education credits (AOTC/LLC), qualified expenses generally include: tuition, required enrollment fees, and required student activity fees. AOTC also allows books/supplies/equipment needed for a course of study (even if bought off-campus).
LLC is stricter: course materials usually count only when they must be paid to the school as a condition of enrollment/attendance.
What expenses are NOT qualified?
- Room and board for education credits (AOTC/LLC). For 529 plans, room and board can qualify only when the student is enrolled at least half-time and within the school’s allowed cost limits.
- 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 (2025) | $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!
Solve your tax question – ask professionals
Overwhelmed by taxes? With the right information, it gets easier.
Submit your question, and you’ll receive an answer from tax experts within a few business days. While we can’t provide detailed consultations without reviewing your documents, we’ll do our best to assist.
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
Income limits (tax year 2025 filed in 2026): the student loan interest deduction is reduced if your MAGI is $85,000–$100,000 (single) or $170,000–$200,000 (married filing jointly).
You can’t claim it at $100,000+ (single) or $200,000+ (MFJ).
How do scholarships and grants affect your education tax benefits?
Scholarships and grants usually reduce the expenses you can use for AOTC/LLC.
But there’s an important exception: if you treat part of a scholarship as taxable income (because it was used for non-qualified costs like room and board), that can sometimes leave more qualified expenses available for the credit. The right approach depends on the student’s costs and how the scholarship can be allocated - so keep records beyond Form 1098-T.
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.
