College Tuition Deduction

Massachusetts allows a deduction for tuition payments paid by taxpayers for themselves, their spouses, and their dependents to qualifying two or four year colleges leading to undergraduate or associate degrees, diplomas, or certificates. The deduction is equal to the amount by which the tuition payments, less any scholarships, grants or financial aid received, exceed 25% of the taxpayer's Massachusetts adjusted gross income.

Tuition payments for students pursuing graduate degrees at such colleges or universities are not eligible for the college tuition deduction.

Qualified college tuition expenses include only those expenses designated as tuition or mandatory fees required for the enrollment or attendance of the taxpayer or any dependent of the taxpayer at an eligible educational institution.

No deduction is allowed for any amount paid for room and board, books, supplies, equipment, personal living expenses, meals, lodging, travel or research, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction.

Educational Assistance Programs:
No deduction is allowed for any portion of expenses that are paid or reimbursed by an employer and excluded from gross income under IRC § 127.

See Educational Assistance Programs

Qualification for College Tuition Deduction is determined by completing the following worksheets / Schedules:

  • for residents, both the Massachusetts AGI Worksheet and the College Tuition Deduction Worksheet;
  • for part-year residents, both Schedule NTS-L-NR/PY, No Tax Status and Limited Income Credit and the College Tuition Deduction Worksheet. To determine the amount allowable, they must multiply the amount reported in Line 6 of the College Tuition Deduction worksheet by Form 1-NR/PY, Line 2, Part-Year Resident Ratio, since this deduction must be prorated based upon the number of days a Massachusetts resident;
  • for nonresidents, both Schedule NTS-L-NR/PY, No Tax Status and Limited Income Credit and the College Tuition Deduction Worksheet. To determine the amount allowable, they must multiply the amount reported in Line 6 of the College Tuition Deduction worksheet by Form 1-NR/PY, Line 14g, Nonresident Deduction and Exemption Ratio, since this deduction must be prorated based upon the amount of taxpayer's Massachusetts source income to his/her total income.

Student Loan Interest Deductions

General Rules:
Massachusetts allows two student loan interest deductions for interest paid on a "qualified education loan":

  • the federal deduction at IRC § 221 for both graduate and undergraduate student loan interest paid, reported on Schedule Y, Line 10 which has a maximum amount allowed; and
  • the Massachusetts deduction for interest paid on a qualified undergraduate student loan, reported on Schedule Y, line 12 which is unlimited.

The same taxpayer may claim both deductions on the same return, provided the deductions are not taken for the same interest payments.


Federal Student Loan Interest Deduction

A deduction is allowed for interest paid by the taxpayer, up to an annual maximum of $2,500, for a qualified education loan for both undergraduate and graduate education, subject to taxpayer income limitations. Any federal tax law changes to this deduction will not be automatically adopted. Massachusetts will continue to follow the Code of January 1, 2005.

For 2012, the maximum deduction of $2,500 is phased out if:

  • Filing status is married filing jointly and federal modified adjusted gross income (MAGI) is between $120,000 and $150,000. The deduction is disallowed if MAGI is $150,000 or more;
  • For all other filing statuses, the deduction is phased out if MAGI is between $60,000 and $75,000. The deduction is disallowed if MAGI is $75,000 or more.

Qualified Education Loan for Dependents:
Qualified education loan means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses which are incurred on behalf of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred. Dependents, therefore, would not be eligible for the deduction for the taxable year if a dependent deduction under I.R.C. § 151 with respect to such individual is allowed to another taxpayer for the taxable year beginning in the calendar year in which such individual's taxable year begins. 

No Tax Status and Limited Income Credit Calculation:
This deduction impacts the calculation of No Tax Status and the Limited Income Credit as it is treated as an adjustment to arrive at Massachusetts adjusted gross income on the Massachusetts AGI Worksheet and Schedule NTS-L-NR/PY.


Massachusetts Undergraduate Student Loan Interest Deduction

A taxpayer may claim a Massachusetts deduction for interest payments on certain education debt.

"Education debt" must be a loan that meets all of the criteria below:

  1. it is administered by the financial aid office of a two-year or four-year college at which the taxpayer, or a qualified dependent, was enrolled as an undergraduate student;
  2. it must have been secured through a state student loan program, a federal student loan program, or a commercial lender; and
  3. it must have been spent solely for the purposes of paying tuition and other expenses directly related to the school enrollment.

The Massachusetts deduction:

  • applies only to undergraduate education loans and not to graduate education loans;
  • unlike the federal deduction, there is no maximum deduction amount allowed; whatever amount qualifies is allowable;
  • unlike the federal deduction, the Massachusetts deduction is allowed regardless of taxpayer's income and regardless of the age of the loan.

The deduction is not allowed if the taxpayer claims the deduction allowed under IRC § 221 for the same interest payments.

No Tax Status and Limited Income Credit Calculation:
This deduction does not impact the calculation of No Tax Status and the Limited Income Credit as it is treated as a deduction t to arrive at Massachusetts taxable income.


Student Loan Examples

Examples where the Phase out Rules Do Not Apply:

Example #1:

Single taxpayer with federal "modified AGI" of $48,000
Undergraduate interest of $2,900

Since this single taxpayer's federal modified AGI is $50,000 or less, he or she can deduct interest as follows:

Federal:

  • Allowable 1040, Line 33 - $2,500, the maximum combined graduate and undergraduate interest paid deduction allowed.

Massachusetts:

  • Allowable Schedule Y, Line 10 federal deduction - $2,500, the maximum federal deduction for combined undergraduate and graduate interest paid was an allowable Massachusetts deduction;
  • Allowable Schedule Y, Line 12 Massachusetts deduction - $400, undergraduate interest not claimed as a federal deduction was an allowable Massachusetts deduction;
  • Alternatively, allowable Schedule Y, Line 12 Massachusetts deduction - $2,900 since all of the interest is for undergraduate and if it is clear that taxpayer does not qualify for No Tax Status of Limited Income Credit.

Example #2:
Married filing joint taxpayer with federal "modified AGI" of $103,000.

Graduate interest $1,700
Undergraduate interest $1,500
Total student loan interest $3,200

Since taxpayers' federal modified AGI is $105,000 or less, they can deduct interest as follows:

Federal:

  • Allowable 1040, Line 33 - $2,500, the maximum combined graduate and undergraduate interest paid deduction allowed.

Massachusetts:

  • Allowable Schedule Y, Line 10 federal deduction - $2,500, the maximum federal deduction for combined undergraduate and graduate interest paid was an allowable Massachusetts deduction;
  • Allowable Schedule Y, Line 12 Massachusetts deduction - $700, undergraduate interest not claimed as a federal deduction, was an allowable Massachusetts deduction;
  • Alternatively, Schedule Y, Line 10 - $1,700 and Line 12, $1,500 if it is clear that taxpayer does not qualify for No Tax Status of Limited Income Credit.

Example #3:
Married filing joint taxpayer with federal "modified AGI" of $85,000.

Graduate interest $3,000
Undergraduate interest $1,100
Total student loan interest $4,100

Since taxpayers' federal modified AGI is $85,000 or less, they can deduct interest as follows:

Federal:

  • Allowable 1040, Line 33 - $2,500, the maximum combined graduate and undergraduate interest paid deduction allowed.

Massachusetts:

  • Allowable Schedule Y, Line 10 federal deduction - $2,500, the maximum federal deduction for combined undergraduate and graduate interest paid was an allowable Massachusetts deduction;
  • Allowable Schedule Y, Line 12 Massachusetts deduction - $1,100, undergraduate interest not claimed as a federal deduction, was an allowable Massachusetts deduction;
  • No Alternative filing.

Examples where the Phase out Rules Apply:

Example #1:
Married filing joint taxpayers with "modified AGI" of $115,000

Graduate interest $2,300
Undergraduate interest $1,000
Total student loan interest $3,300

Since taxpayers' modified AGI falls within the phase out thresholds of $110,000 and $140,000 for married filing joint, they must reduce the federal deduction allowed on Schedule Y as follows:

($120,000 - $115,000) = 17% phase out percentage
$30,000

$2,300 x 17% (.17) = $391 phase out amount

Federal Deduction:

($120,000 - $115,000) = 17% phase out percentage
$30,000

$3,300 x 17% (.17) = $561 phase out amount

Massachusetts Deduction:

  • Allowable Schedule Y, Line 10 federal deduction - $1,909 ($2,300 - $391), the phase out percentage of 17% is applied against the federal graduate interest; and
  • Allowable Schedule Y, Line 12 Massachusetts - $1,000, the full amount of undergraduate interest.
  • $2,500, the maximum allowable deduction (combined interest of $3,300 - $561= $2,739 but limited to $2,500)

Example #2:
Married filing joint taxpayers with "modified AGI" of $148,000

Graduate interest $1,900
Undergraduate interest $800
Total student loan interest $2,700

Federal Deduction:

  • Since taxpayers' modified AGI of $148,000 exceeds the modified AGI threshold for married filing joint taxpayers ($135,000 or more), taxpayers may not claim the student loan interest deduction.

Massachusetts Deduction:

Allowable Schedule Y, Line 10 federal deduction
= $0 since the taxpayers' modified AGI of $148,000 exceeds the modified AGI threshold for married filing joint taxpayers ($140,000 or more) they may not claim the federal deduction on Schedule Y;

  • Allowable Schedule Y, Line 12 Massachusetts deduction = $800, the full amount of undergraduate interest.

Where to Report on Original Tax Return; What to Enclose:

College Tuition Deduction

Federal Student Loan Deduction

  • The amount allowed is entered on either Mass Form 1 or 1-NR/PY, Schedule Y, Line 12.

Massachusetts Student Loan Deduction

  • If Schedule Y, Line 10 is completed - if there are additional interest amounts that qualify for the Massachusetts Interest Deduction that are not included on Schedule Y, Line 10, enter the additional amount on either Mass Form 1 or 1-NR/PY, Schedule Y, Line 12.

For both Federal and Massachusetts Student Loan Deduction

  • Part-year residents must multiply the amount of the allowable deduction by the ratio in Massachusetts Form 1-NR/PY, Line 2, Total Days as Massachusetts Resident, since this deduction must be prorated based upon the number of days a taxpayer is a Massachusetts resident.
  • Nonresidents must multiply the amount of the allowable deduction by Massachusetts Form 1-NR/PY, Line 14g, Nonresident Deduction and Exemption Ratio, since this deduction must be prorated based upon the amount of taxpayer's Massachusetts gross income (derived from sources within Massachusetts) to Massachusetts gross income derived from all sources, as if the taxpayer were a full year Massachusetts resident.

Documentation to Submit with Abatement/Amended Tax Return:

College Tuition Deduction

  • Social Security number of qualifying student(s);
  • Massachusetts College Tuition Deduction worksheet to verify calculation;
  • Substantiation of expenses.

Federal Student Loan Deduction to show that the deduction was taken federally

  • Copy of Form 1040 - U.S. Individual Income Tax Return (Page 1), or Form 1040X - Amended U.S. Individual Income Tax Return.

Massachusetts Undergraduate Student Loan Deduction to show that the
deduction was taken federally

  • Document from the lending institution to verify the amount of the student loan interest paid for the year.

Massachusetts References:

Federal References

  • I.R.C. §§ 62(a)(17); 221
  • U.S. Publication 970, Tax Benefits for Higher Education

Federal References for deductions allowed only in 2005

  • I.R.C. §§ 62(a)(2)(D); 62(a)(18); 222

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