Take advantage of tuition tax deduction

Jan. 25, 2007 -- Taxpayers taking advantage of the renewed higher education tuition and fees deduction might want to wait until mid-February to file their 2006 income taxes. In recently released guidelines, the Internal Revenue Service (IRS) suggests waiting to ensure claims — filed both on paper and electronically — are processed correctly, according to the American Council on Education.

The tuition tax deduction allows people who earn $65,000 or less a year ($130,000 for married couples filing joint returns) to deduct as much as $4,000 in higher education expenses and those earning $65,000 to $80,000 ($130,000 to $160,000 for married couples) to deduct as much as $2,000.

The deduction was included in the Tax Relief and Health Care Act of 2006 (H.R. 6111), a package of tax extenders, health savings account changes and other tax breaks passed by the U.S. Congress just before it adjourned Dec. 9, 2006. Because the legislation was passed so late in the year, the already-printed 2006 tax forms do not include a line for the tuition deduction.

By early February, the electronic form will be updated with a line for the new tax deductions. Filing electronically reduces the chance for error, the IRS says.

For those filing the paper Form 1040, enter the deduction on line 35, "Domestic production activities deduction." Taxpayers must file Form 1040 to claim the tuition tax deduction; it cannot be claimed on Form 1040A.

For more information, visit irs.gov.