Educational Travel Not Deductible
By Julian Block
The tax code authorizes valuable breaks for middle-income families scrambling to pay tuition costs at colleges and universities. Qualifying families can claim two education tax credits - the Hope Scholarship Credit and the Lifetime Learning Credit.
The Hope credit is worth up to $1,500 in tax savings per student per year, offsetting part of the tuition and fees for the freshman and sophomore years of college of each eligible family member. The key requirements in a laundry list of stipulations: each student's expenses are at least $2,000 and he or she is enrolled at least half time.
Fewer restrictions (equally complicated) apply to a supplement to the Hope credit - the Lifetime credit. It benefits third-and fourth-year students, graduate students, and, though enrolled less than half time, others returning to school to expand their knowledge or acquire or improve their job skills. This credit trims taxes by as much as $1,000 per year, provided total expenses for all eligible family members are at least $5,000 and other requirements are met.
The Hope and Lifetime credits cover only tuition and fees. Both bar any credit for, among other outlays, air fares and other travel costs to get to and from school.
The legislation that introduced the two credits left unchanged other education breaks already on the books. Individuals also can deduct courses that either (1) maintain or improve skills required to perform the duties of their current jobs or businesses or (2) meet the requirements of their employers or of laws or regulations for keeping their jobs.
Unlike the Lifetime credit, no deductions for courses to meet minimum educational requirements for future occupations or qualify in new endeavors. Moreover, the 1986 tax act abolished deductions for travel as a form of education a plum previously enjoyed by many persons, particularly teachers with time for lengthy trips to distant places during their school vacation periods or sabbatical leaves.
EXAMPLE. Lynda Martin cannot deduct (though she could qualify for the Hope and Lifetime credits) courses to meet the minimum requirements for obtaining a license to teach French at a high school. It is a different story, though, if Lynda already teaches that language at a school and wants to switch to teaching Spanish.
The IRS unreservedly approves deductions (both credits could also be allowed) for courses to qualify her as a teacher of a different language, as she is still in the same line of work. Also, Lynda's educational write-offs are not limited to payments for the Spanish courses. Her deductions (but not the credits) include travel to and from course locations, whether inside or outside of the United States.
At one time, the cost of the travel itself, including meals and lodgings, usually qualified as a form of deductible education, as the trip enriched her teaching skills. In most cases, this break was available to Lynda, as well as other language teachers, who spent their summer vacations in say, Spain or Japan, where, though they took no courses, their travels enabled them to improve their understanding of the languages and cultures of these countries.
Now, though, absolutely no deductions for travel expenditures by teachers and others where their travel is a form of education. The ban applies to travel deductions that are allowable solely because the travel itself is educational, with an exception for trips that are necessary to engage in activities that give rise to deductible education.
EXAMPLE. Gene Miglio, who teaches Chinese, uses a sabbatical leave from his school for a journey to China to brush up on his accent and better his knowledge of its culture. No education-expense deduction for travel costs, notwithstanding that Gene spent most of his time visiting Chinese families and schools and attending movies, lectures and plays.
EXAMPLE. June Weiss, employed by a school to teach courses on French literature, goes on the Concorde to Paris to do specific library research that cannot be done elsewhere, or to take courses offered only at the Sorbonne. Assuming her research or courses meet the deduction requirements, June also gets to deduct her transportation, lodgings and 50 percent of her meals.
CAUTION. Just because June takes courses that allow her to sidestep the educational-travel restrictions does not mean that she can count on a full deduction for her courses (though credits could be claimed for the courses), travel and other unreimbursed employee business expenses. Yet another restriction requires June to include these employee expenses on Schedule A of Form 1040 with her other miscellaneous itemized deductions, such as tax return preparation charges. Most miscellaneous deductions are allowable only to the extent that their total exceeds two percent of her AGI.
Partial disallowance of certain deductions for persons with AGIs above a specified amount $137,300 for tax year 2002. You suffer a partial disallowance of your allowable write-off for most itemized deduction, including educational expenses and other miscellaneous itemized deductions. The disallowance is three percent of the amount by which your AGI surpasses $137,300, up from $132,950 for 2001.