Is Graduate School Tuition Tax-Deductible?

Graduate school tuition can be a deductible education expense under the tuition and fees deduction if you meet the criteria. To qualify, you must pay the tuition for yourself, your spouse or your dependent. Your income cannot exceed the annual limits. Payments must be for tuition and fees, not for other expenses like room, board, travel or personal expenses. Regardless of how much your tuition costs, your deduction is limited to $4,000 per year.

Instead of deducting your graduate school tuition, you may save more on your income taxes if you claim the lifetime learning credit instead. The lifetime learning credit has the same requirements, but the income cutoff for those eligible to take it is lower. It gives you a tax credit equal to 20 percent of your first $10,000 of expenses, for a maximum tax credit of $2,000.

To determine which approach will save you more on your federal income taxes, you need to know your marginal income tax rate. To figure your savings for using the tuition and fees deduction, multiply your marginal tax rate by your deduction, up to the $4,000 maximum, and compare the result with the value of your lifetime learning credit. For example, assume you are in the 15 percent tax bracket and have $7,000 of graduate school tuition. If you claim the tuition and fees deduction, you save $600 ($4,000 times 15 percent). If you claim the lifetime learning credit, you save $1,400 ($7,000 times 20 percent).