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By Kyle Lusczakoski, CPA, MST – Tax Manager, Doeren Mayhew

Although the Tax Jobs and Cuts Act brought sweeping changes to many aspects of the tax code, the education related sections received only minor changes as highlighted below:

  • Deduction from adjusted gross income for tuition and fees was not extended. Therefore, for tax years beginning after Dec.31, 2016, this deduction of up to $4,000 is no longer available.
  • Distributions from Section 529 plans are now allowed to cover elementary and secondary tuition, up to a maximum of $10,000 per student. This change is in addition to the prior law, which did not change. The prior law allows for tax-free distributions, as long as they are used for qualified higher education costs, such as:
    • Tuition, fees, books, supplies and equipment required for enrollment
    • Computers, if to be used primarily by the student during any of the years enrolled
    • Room and board, if enrolled at least half time
  • Discharge of student loan indebtedness exclusion was expanded, to now exclude the forgiveness of certain student loans from gross income if:
    • The forgiveness is contingent on the student working for a certain period of time in certain professions, or
    • The student loan is discharged on account of death or total and permanent disability of the student. This provision expires on Jan. 1, 2026.
  • The new law did not make any changes to the Lifetime Learning Credit or the American Opportunity Tax Credit allowing taxpayers to:
    • Claim related costs at a 40 percent refundable rate, with a maximum credit up to $2,500 for each eligible student, not to be claimed for more than four years. This credit begins to be phased out at modified adjusted gross income of $160,000 for married filing jointly.
    • Take advantage of the Lifetime Learning Credit if the taxpayer does not meet the requirements for the American Opportunity Tax Credit. The credit is equal to 20 percent of up to $10,000 of qualified expenses. There is no limit to the number of years for which this credit may be claimed, but it does begin to be phased out at modified adjusted gross income of $130,000 for married filing jointly.

If you have any questions about how these changes may impact your individual or family tax liabilities, contact a Doeren Mayhew tax advisor today.

Want to reach the author? Email Kyle Lusczakoski or contact him at 248.244.3048.