| New
York State Permits Multiple Deductions for Higher Education
Costs
By
Mark H. Levin
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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