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Tax Breaks

Don't Miss the Tuition Deduction

You won't find a line on your tax return this year for the college tuition and fees deduction, but you still can claim this write-off.

I thought that Congress renewed the tuition and fees deduction this year, but there isn't any space on my tax form to report it. I thought that I would qualify for that deduction. How can I take the tax break when I file my taxes?

You're absolutely right. Congress did renew the tuition and fees deduction, but it acted so late in the year -- it wasn't signed into law until late December -- that the 2006 tax forms had already been printed. You'll need to follow special instructions to take the write-off because you won't find a separate line in the 1040 for the deduction.

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If you file the paper forms, write "T" and enter your write-off on line 35, which is labeled "domestic production activities deduction." If you use tax-preparation software like TurboTax, be sure to download the most recent updates.

Because of the missing line on the tax form, this deduction is easy to overlook this year -- but can be quite valuable. If you paid college tuition for yourself, your spouse or a dependent in 2006, you may be able to deduct up to $4,000 in college tuition and fees -- which could lower your tax bill by up to $1,000 if you're in the 25% tax bracket.

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To qualify for the full deduction, your adjusted gross income must be $130,000 or less in 2006 if married filing jointly ($65,000 or less if single). You can deduct up to $2,000 in tuition and fees if your joint income was $160,000 or less ($80,000 or less if single). There is no deduction if you earn more than that. You don't need to itemize to qualify.

This deduction can be helpful if you earn too much money to qualify for a Hope or lifetime learning credit, which are more valuable (you can't take the tuition deduction in the same year you take the Hope or lifetime learning credit). The Hope credit can lower your tax bill by up to $1,650 per child in the first two years of college; the lifetime learning credit can reduce your taxes by up to $2,000 after that. But you can only take these credits if you're married filing jointly and earn less than $110,000; or $55,000 for single filers.

For more information about these tax breaks for college tuition, see IRS Publication 970 Tax Benefits for Education. For more information about the filing rules for several last-minute tax-law changes, see the IRS's update.

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