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Understanding program optimization for the Tuition and Fees Deduction vs. education credits

SOLVEDby IntuitProConnect Tax10Updated February 10, 2022

This article will assist you with understanding how ProConnect Tax optimizes between the following credits and deduction:

  • The Lifetime Learning Credit
  • The American Opportunity Credit
  • The Tuition and Fees Deduction

Tuition and Fees Deduction (Form 8917) has been repealed starting in Tax Year 2021.

American Opportunity Credit & Lifetime Learning Credit (Form 8863)

  • Expanded Lifetime Learning Credit to phase outs that mirror American Opportunity Credit in 2021
  • MAGI phase out range --$160,000 --$180,000 married filing joint; $80,000 --$90,000 other filers

How does the program optimize between the Tuition and Fees Deduction and education credits for tax year 2021?

When ProConnect optimizes between the Education Credit (Form 8863), it looks at a few factors:

  • If the taxpayer's MAGI exceeds $180,000 for MFJ, or $90,000 for S, MFS, or QW, then they can't take the Lifetime Learning Credit (LLC).
  • If the taxpayer's MAGI exceeds $180,000 for MFJ, or $90,000 for S, MFS, or QW, then they can't take the American Opportunity Credit.

ProConnect Tax will calculate both scenarios and ask, "Which will result in a lower tax liability?"

How does the program optimize between the Tuition and Fees Deduction and education credits for tax year 2020?

When ProConnect optimizes between the Tuition and Fees Deduction (Form 8917) and the Education Credit (Form 8863), it looks at a few factors:

  • If the taxpayer's MAGI exceeds $138,000 for MFJ, or $69,000 for S, MFS, or QW, then they can't take the Lifetime Learning Credit (LLC).
  • If the taxpayer's MAGI exceeds $180,000 for MFJ, or $90,000 for S, MFS, or QW, then they can't take the American Opportunity Credit.
  • If the taxpayer's MAGI exceeds $160,000 for MFJ, or $80,000 for S, MFS, or QW, then they can't take the Tuition and Fees Deduction.

ProConnect Tax will calculate both scenarios and ask, "Which will result in a lower tax liability?"

Example 1

If having the amount as an adjustment would provide a lower tax liability on Form 1040, line 16, then the program will generate Form 8917 and place the calculated figure on Schedule 1, line 21.

Example 2

If the tuition and fees expense is so small that there would be no tax benefit derived by taking it as an adjustment to income, or the tax liability would be smaller if the Education Credit were taken, the program will generate Form 8863 and place the calculated figure on Schedule 3, line 3.

Follow these steps to force the credit or deduction in tax year 2020 and prior:

  1. Go to the Input Return tab.
  2. From the left of the screen, select Credits and choose  Education/ Tuition (1098-T, 8863, 8917).
  3. Locate the Persons and Expenses Qualifying for Education Credits or Tuition Deduction (1098-T) section.
  4. Scroll down to the Current Year Expenses subsection.
  5.  Enter a 1 or 2 in the field labeled Blank=optimize, 1=force credit, 2=force tuition deduction.
    • This will force the program to calculate either Form 8917 or 8863 and show if the taxpayer does or doesn't qualify.

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