Education Tax Benefits (continued)

Since this deduction is taken above the line, it can make the family eligible for additional need-based aid during the next year since it reduces AGI. That can potentially make this deduction more attractive than the Hope Scholarship or Lifetime Learning tax credit, if the additional aid is in the form of grants instead of loans.

The deduction is especially popular for families who earn too much money to qualify for the Hope Scholarship and Lifetime Learning tax credits.

The omnibus tax extender legislation passed by Congress in December 2006 extended the tuition and fees deduction for two years (2006 and 2007).

Since the legislation was passed after the IRS had already printed the 2006 federal income tax returns, there is no line on the 2006 IRS Form 1040 for reporting the deduction. Instead, taxpayers will need to include the amount of the tuition and fees deduction on line 35 "Domestic production activities deduction". Enter a "T" to the left of the amount if it includes just the tuition and fees deduction or a "B" if the amount also includes both the domestic production activities deduction and the tuition and fees deduction. If a "B" is entered, attach a breakdown to the return showing the amounts claimed for each deduction.