How broadly are qualified expenses defined for the Lifetime Learning Tax Credit?

Question

The IRS allows 20% of up to $10,000 of "qualified education expenses" to be applied to one's tax bill via the Lifetime Learning Credit (LLC). I've been searching for more information pertaining to what exactly constitutes a qualified expense, but what I find is not as specific as I'd hoped.
For example, tuition and fees qualify, but things seem less clear for books and materials. At least one website says these can only be claimed if they are required "as a condition of enrollment or attendance," but even this vague: my university hasn't explicitly required that I buy a computer to facilitate my studies, but it would be reasonable to say that a computer is (at least colloquially, if not strictly) necessary to complete a post-secondary degree.
Does an expense's qualification or non-qualification for  the LLC depend on the university's formal requirements or on some form of "reasonable expectation" of what constitutes necessity (or on something else)? Would the LLC extend to more ancillary expenses such as internet access at home, which I use, in part, to acquire assignments and other materials from course websites? Would access to equivalent resources on campus disqualify such an expense? Is any consideration given to the fraction of the obtained good or service that is used for degree-related purposes?
(I am a US citizen in a graduate program at an American university. I am single and have no dependents.)

BrenBarn · Accepted Answer

The examples you gave would not be allowed.
IRS Publication 970 is linked from the page you linked to.  It has a whole section on what counts as "qualified expenses".  It says:

Student activity fees and expenses for course-related books, supplies, and equipment are included  in  qualified  education  expenses  only  if  the  fees and  expenses  must  be  paid  to  the  institution  for  enrollment or attendance.

The key words are must be paid to the institution.  If you pay or could have paid a third party for your equipment, it's not a qualified expense.  This is made clear by one of the examples in the same section:

Donna  and  Charles,  both  first-year  students  at  College  W,  are  required  to  have  certain  books and  other  reading  materials  to  use  in  their mandatory first-year  classes.  The  college  has  no  policy  about  how students  should  obtain  these  materials,  but  any  student who purchases them from College W's bookstore will receive a bill directly from the college. Charles bought his books from a friend, so what he paid for them isn't a qualified  education  expense.  Donna  bought  hers  at  College W's bookstore. Although Donna paid College W directly for her first-year books and materials, her payment isn't a qualified expense because the books and materials aren't required to be purchased from College W for enrollment or attendance at the institution.

In other words, anything that you could have obtained from a third party (such as a computer or internet access) doesn't count if it was possible for you to obtain it from a third party, regardless of whether you actually did so.

How broadly are qualified expenses defined for the Lifetime Learning Tax Credit?

One Answer

Add your own answers!

Ask a Question