Deduction for higher education expenses

(a)

Deduction allowed

Section 221 of the Internal Revenue Code of 1986 is amended to read as follows:

221.

Higher education expenses

(a)

Allowance of deduction

In the case of an individual, there shall be allowed as a deduction an amount equal to the sum of— (1)the qualified higher education expenses, plus (2)interest on qualified education loans,

paid by the taxpayer during the taxable year.

(b)

Qualified higher education expenses

For purposes of this section— (1)

Qualified higher education expenses

(A)

In general

The term qualified higher education expenses means— (i)tuition and fees charged by an educational institution and required for the enrollment or attendance of— (I)the taxpayer, (II)the taxpayer’s spouse, (III)any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151, or (IV)any grandchild of the taxpayer,

as an eligible student at an institution of higher education, and

(ii)reasonable living expenses for such an individual while away from home and attending such institution. (B)

Eligible courses

Amounts paid for qualified higher education expenses of any individual shall be taken into account under subsection (a) only to the extent such expenses— (i)are attributable to courses of instruction for which credit is allowed toward a baccalaureate degree by an institution of higher education or toward a certificate of required course work at a vocational school, and (ii)are not attributable to any graduate program of such individual. (C)

Eligible student

For purposes of subparagraph (A), the term eligible student means a student who— (i)meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the date of the enactment of this section, and (ii)is carrying at least one-half the normal full-time work load for the course of study the student is pursuing, as determined by the institution of higher education. (2)

Institution of higher education

The term institution of higher education is as defined in section 101 of the Higher Education Act of 1965 (20 U.S.C. 1001). (c)

Qualified education loan

For purposes of this section— (1)

In general

The term qualified education loan means a loan which is— (A)made, insured, or guaranteed by the Federal Government, (B)made by a State or a political subdivision of a State, (C)made from the proceeds of a qualified student loan bond under section 144(b), or (D)made by an institution of higher education. (2)

Limitation

The amount of interest on a qualified education loan which is taken into account under subsection (a)(2) shall not exceed the amount which bears the same ratio to such amount of interest as— (A)the proceeds from such loan used for qualified higher education expenses, bears to (B)the total proceeds from such loan.

For purposes of the preceding sentence, the term qualified higher education expenses shall be determined without regard to subsection (c)(1)(A)(i)(IV).

(d)

Special rules

(1)

No double benefit

(A)

In general

No deduction shall be allowed under subsection (a) for any expense for which a deduction is allowable to the taxpayer under any other provision of this chapter unless the taxpayer irrevocably waives his right to the deduction of such expense under such other provision. (B)

Denial of deduction if credit elected

No deduction shall be allowed under subsection (a) for a taxable year with respect to the qualified higher education expenses of an individual if the taxpayer elects to have section 25A apply with respect to such individual for such year. (C)

Dependents

No deduction shall be allowed under subsection (a) to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins. (D)

Coordination with exclusions

A deduction shall be allowed under subsection (a) for qualified higher education expenses only to the extent the amount of such expenses exceeds the amount excludable under section 135 or 530(d)(2) for the taxable year. (2)

Limitation on taxable year of deduction

(A)

In general

A deduction shall be allowed under subsection (a) for qualified higher education expenses for any taxable year only to the extent such expenses are in connection with enrollment at an institution of higher education during the taxable year. (B)

Certain prepayments allowed

Subparagraph (A) shall not apply to qualified higher education expenses paid during a taxable year if such expenses are in connection with an academic term beginning during such taxable year or during the first 3 months of the next taxable year. (3)

Adjustment for certain scholarships and veterans benefits

The amount of qualified higher education expenses otherwise taken into account under subsection (a) or (d)(2) with respect to the education of an individual shall be reduced (before the application of subsection (b)) by the sum of the amounts received with respect to such individual for the taxable year as— (A)a qualified scholarship which under section 117 is not includable in gross income, (B)an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or (C)a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for educational expenses, or attributable to enrollment at an eligible educational institution, which is exempt from income taxation by any law of the United States. (4)

No deduction for married individuals filing separate returns

If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year. (5)

Nonresident aliens

If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. (6)

Regulations

The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring recordkeeping and information reporting.

(b)

Deduction allowed in computing adjusted gross income

Paragraph (17) of section 62(a) of such Code is amended to read as follows:

(17)

Higher education expenses

The deduction allowed by section 221.

(c)

Conforming amendments

(1)The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the item relating to section 221 and inserting the following new item:

Sec. 221. Higher education expenses

(2)Section 6050S(e) of such Code is amended by striking section 221(d)(1) and inserting section 221(c)(1). (d)

Effective date

The amendments made by this section shall apply to payments made after December 31, 2004.