ARRA Expands Definition of Qualified Education Expenses
February 17, 2009
One piece of the American Recovery and Reinvestment Act of 2009 expands the definition of qualified education expenses. For 2009 and 2010, qualified education expenses include computers, computer software, peripheral equipment and even internet expenses. This means that distributions from 529 accounts, qualified tuition programs, can be used for these expenses as long as they will be used by the beneficiary or his/her family during the years he/she is enrolled at an eligible educational institution. The expanded definition of qualified higher education expenses does specifically exclude computer software that is designed for games, sports or hobbies unless that software is “predominately educational in nature.”
Can you deduct the cost of purchasing a computer and internet expenses as a qualified education expense for the American Opportunity Credit if the college requires you to use a computer for term papers and research?
The American Opportunity Tax Credit can be claimed for tuition, fees and course materials in 2009 and 2010. However, computers are not specifically included in this category. The only way the computer could be taken as a qualified expense would be if the purchase was part of the tuition.
The IRS does not use the term “course materials”. It critical to look at exact wording. The IRS states: “Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study…” Supplies and equipment do not have to be purchased as part of tuition to qualify. Computers are not specifically included or excluded. The IRS would be the best source for this question.
What if a college provides free or rental equipment for use for the students, but a student decides to purchase one for himself? would this qualify?
Qualified higher education expenses include fees for equipment required for enrollment or attendance. Where equipment is not required to be purchased it would not qualify. Therefore, if the college provides the equipment, it is not a qualified higher education expense.