New York State Permits Multiple Deductions for Higher Education Costs

By Mark H. Levin

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OCTOBER 2005 - A taxpayer is rarely permitted to deduct the same item more than once. New York State is an exception to the rule, with respect to deducting higher education costs. In some circumstances, the same tuition costs may be deducted three times.

Under IRC section 222(a), taxpayers can deduct, from 2001 through 2005, an above-the-line adjustment of up to $4,000 for qualified higher education expenses, depending on their modified adjusted gross income (AGI).

New York State Tax Law section 615 (d)(4) permits taxpayers that itemize to take an additional deduction equal to the first $10,000 of tuition paid on behalf of themselves or their dependants; this additional deduction is not limited by AGI. As an alternative to the additional itemized deduction, Tax Law section 606(t) permits New York State residents to take a credit of up to $400 against taxes due. This deduction may cover the same tuition that was used to compute the federal adjustment. There is no provision requiring a taxpayer to add the federal deduction back in computing the New York taxable income. The effect of this anomaly is that taxpayers may be entitled to deduct up to $4,000 of tuition payments twice on their New York State tax return, first as an above-the-line federal adjustment and then as an additional itemized deduction.

Taxpayers are also permitted to treat tuition payments made from an IRC section 529 plan toward the above New York tuition deduction. This provides another opportunity for taxpayers to take multiple deductions for the same item. New York State Tax Law section 612(c)(32) permits taxpayers that contribute to New York’s section 529 plan (College Choice) to subtract up to $5,000 ($10,000 for married couples filing jointly) in computing their New York AGI. Because New York allows taxpayers to treat distributions made from a New York College Choice plan to count toward the tuition allowable for the New York tuition deduction, they are deducting the same amount twice, first upon making the contribution to a New York College Choice plan and then upon using a distribution from the plan to pay tuition.

For taxpayers that pay higher education tuition on behalf of themselves or their dependents, the above anomalies in the law provide an opportunity to save on their New York State taxes. If taxpayers have not taken advantage of the opportunity to take multiple deductions on their New York tax returns for 2001, 2002, or 2003, they may file amended returns to do so.

Mark H. Levin, CPA, is manager, state and local taxes, at H.J. Behrman & Company, LLP, New York, N.Y.




















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