What Are Other Qualified Expenses for Form 1098-T?

Form 1098-T, Tuition Statement, is a document from educational institutions that reports the amount of tuition paid in a calendar year. This figure is the starting point for claiming education-related tax benefits. However, the amounts on this form do not always represent the total cost of qualified expenses. Taxpayers can often claim additional costs not listed on the form, which can impact their eligibility for tax credits.

Defining Qualified Education Expenses

The Internal Revenue Service (IRS) defines qualified education expenses as tuition and fees required for enrollment or attendance at an eligible postsecondary institution. This definition can include a variety of other required costs. For instance, student-activity fees are considered qualified expenses, but only if they are mandatory for all students as a condition of enrollment, regardless of their participation.

The most significant category of expenses often omitted from Form 1098-T is course materials. This includes books, supplies, and equipment that are required for a specific course of study, such as a textbook for a history class or lab equipment for a science class. For these materials to qualify, the expense must be a prerequisite for successful completion of the coursework as outlined by the instructor or syllabus. Optional materials purchased for convenience do not meet the IRS standard. A key detail is that these materials do not have to be purchased directly from the educational institution.

How Expenses Apply to Education Credits

The usability of these other qualified expenses depends on which education tax credit is being claimed. The rules differ between the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Each credit has its own requirements for what costs can be included when calculating the benefit.

American Opportunity Tax Credit

The AOTC offers a more expansive definition of qualified expenses. Taxpayers claiming this credit can include tuition, all required fees, and course materials such as books, supplies, and equipment needed for a course of study. A major benefit of the AOTC is that these required course materials can be purchased from any vendor; they are not required to be bought from the school. This allows for a broader range of costs to be included, potentially increasing the credit amount up to the annual limit of $2,500 per eligible student.

Lifetime Learning Credit

The LLC has a more restrictive definition of qualified expenses. For the LLC, qualified expenses generally include only tuition and fees that are required for enrollment and must be paid directly to the educational institution. This means that expenses for books, supplies, and equipment only qualify if the school requires them to be purchased directly from the institution as a condition of enrollment. In most cases, costs for materials bought from third-party vendors cannot be included for the LLC. However, the LLC can apply to courses taken to acquire or improve job skills, even if they are not part of a degree program.

Expenses That Do Not Qualify

The IRS explicitly excludes several categories of expenses from being considered “qualified” for tax credit purposes, even if they are paid directly to the school. These non-allowable costs are considered personal expenses rather than direct educational costs. Common non-qualified expenses include:

• Room and board, for on-campus or off-campus housing
• Transportation and parking fees
• Insurance premiums
• Medical expenses, which can include student health fees

Similarly, expenses for courses related to sports, games, or hobbies are not qualified. An exception applies if the course is part of the student’s degree program or is taken to acquire or improve job skills.

Documenting Expenses Not on Form 1098-T

Since Form 1098-T only reports payments made to the institution, record-keeping is necessary to substantiate any other qualified expenses claimed on a tax return. The taxpayer must be able to demonstrate that these additional costs meet IRS requirements. To properly document these costs, you must keep detailed receipts for any required books, supplies, or equipment.

These receipts should clearly show the vendor, date of purchase, item description, and amount paid. Credit card or bank statements that correspond to these purchases serve as secondary proof of payment. It is also advisable to retain a copy of the course syllabus or an official booklist from the instructor, as this documentation links the purchase to a course requirement.