Tax Deductions and Tax Breaks for Private Schools

Some tuition is still deductible on 2017 returns

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Maybe you've heard that your neighbor claims a tax credit for what she spends on her child's after-school program, or your cousin might get all sorts of tax perks because his older teen is enrolled at the local community college. It gets you to thinking that you want a piece of all this IRS generosity. You send your child to a private school and it's somewhat costly. Surely you can claim your own tax break for this, right?

Sorry to be the bearer of bad news. The answer is generally, "No," but there are a couple of exceptions. 

The Deduction for Education Expenses

Education expenses are only tax deductible for postsecondary tuition and associated fees. This would include community colleges, universities, trade or vocational schools, and pretty much any other accredited education program following high school. The key words here are "following high school." Grade school and high school tuition and expenses don't count.

There are various tax breaks for higher education expenses, including the Lifetime Learning Credit and the American Opportunity Tax Credit. The deduction for tuition and associated fees expired at the end of 2016, but Congress renewed it retroactively as part of the Bipartisan Budget Act of 2018 so now it's available for the 2017 tax year as well. 

The Deduction for Before- and After-School Care 

This one falls under the umbrella of the Child and Dependent Care Tax Credit. You might qualify for this tax break if your child attends a before- or after-school care program so you can work or look for work. If you're married, your spouse must also work or be looking for work—in other words, she's not available during these hours to care for your child.

Your child must be younger than age 13—the IRS takes the position that if she's older than this, she doesn't require supervised care when you're unavailable.

The credit applies to both private and public school programs, but you must separate the cost of the care from any tuition you pay if you send your child to private school. The school should be able to help you with this.

The amount of the credit varies by taxpayer and is calculated on up to $3,000 in total work-related child care expenses for one child, or $6,000 for two or more children. If you spend $1,500 for the after-school care program and $500 for summer camp so you can work or look for work, you can claim a percentage of these costs as a tax credit. The amount of the percentage depends on your adjusted gross income.

The Coverdell Education Savings Account

The American Taxpayer Relief Act of 2012 made permanent provisions for Coverdell Education Savings Accounts. This isn't exactly a tax break for paying tuition, but it's a tax break all the same. And it applies not only to postsecondary educational costs but to high school and elementary school expenses as well.

You can contribute up to $2,000 a year to a Coverdell ESA. Your contributions aren't tax deductible, but your money grows tax free while it's in the account. You can withdraw all of it, both contributions and accumulated interest, for tuition and other qualified expenses without paying any tax on the growth.

As of 2018, your modified adjusted gross income must be less than $110,000 to qualify for this tax break if you're single. The limit doubles if you're married and filing a joint return. Most taxpayers’ MAGIs are the same as their adjusted gross incomes but check with a tax professional to be sure. 

529 Savings Plans 

A 529 plan, also called a "qualified tuition plan," works similarly to an IRA but for educational purposes. The District of Columbia and 49 states all sponsor at least one of them. They're established and designated for a beneficiary's education costs.

Contributions to the plan aren't tax deductible at the federal level but their growth is tax-free as long as your beneficiary uses the money for educational purposes. Some tax deductions and credits exist at the state level as well.

Although these plans are set up for a beneficiary, technically making the contributions gifts to the beneficiary, they're exempt from the gift tax. 

It used to be that these plans had to be used for postsecondary education as well, but the Tax Cuts and Jobs Act (TCJA) changed that beginning in 2018. You can now establish and use these plans for K-12 education costs, too.

The Charitable Contribution Deduction 

This one isn't necessarily a deduction for your child's education, but it's still a deduction. Charitable contributions you make are tax deductible if you itemize your deductions on Schedule A. Of course, this means foregoing the standard deduction which is often more beneficial for most taxpayers, particularly in 2018 when standard deductions pretty much double under the terms of the TCJA.

Charitable contributions include cash you gave to churches, nonprofits, other qualified charities—and yes, schools—without receiving anything in return. For example, people often buy tickets to a ball, concert, or other event to support a charity. If you pay $100 for a ticket to an event that would normally have cost you $25, the real value of your donation is $75, not the full $100 because you received something in exchange for your donation.

So when you pay tuition and your daughter receives an education in exchange, this doesn't meet the criteria for a charitable donation. But if you make a charitable gift to the school in addition to the amount of tuition and other fees you pay for your daughter's enrollment, this portion would be tax deductible. 

NOTE: Tax laws change periodically, and you should always consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and is not a substitute for tax advice.