Unless extended by Congress before year’s end, 2007 is the final year for
the deduction for qualified higher education expenses. Individual taxpayers
will be allowed to deduct up to $4,000 of higher education expenses instead of claiming the Hope or Lifetime Learning tax credits. The deduction is taken “above-the-line,” so that it is deductible even for those taxpayers who do not itemize their deductions.

Caution: This deduction phases out for higher-income individuals. Married taxpayers filing jointly with an Adjusted Gross Income (AGI) of $130,000 or less are allowed to deduct up to $4,000 of expenses. The maximum deduction drops to $2,000 for taxpayers with an AGI over $130,000, but no deduction
is allowed at all if the AGI exceeds $160,000. For other taxpayers, the equivalent AGI limits are $65,000 and $85,000. In addition, taxpayers filing as Married Separate, Dependent of Another or Non-Resident Alien are not allowed to take this deduction.