Is Continuing Education Tax Deductible for Expats?

With expenses rising worldwide, many expats are struggling to cover the costs of higher education. Fortunately, the IRS is willing to help. In this guide, we’ll examine two continuing education tax deductions that expats can use to offset their taxes.
Eligibility for Education Tax Deductions
US expats are eligible for education tax deductions and credits. These can help you reduce your US tax burden while living overseas. You may also be able to claim credits if your spouse or dependent is enrolled in a college, university, or other educational institution. To qualify, you must meet the following criteria:
- Maintaining US tax obligations: As a US citizen or resident alien living abroad, you’re required to file US tax returns and report worldwide income. You will have to file as required to receive any education tax benefits.
- Work-related education: The IRS allows deductions for education expenses that maintain or improve skills required in your current job or are mandated by your employer or law for retention of your present salary, status, or job. Expenses that qualify you for a new trade or business (i.e., a career change) are not deductible.
If you’re self-employed, you can deduct education expenses as business expenses, provided they are directly related to your current business activities and meet the criteria mentioned above.
Key Tax Credits Available to Expats
The two main continuing tax deductions available for Americans abroad are the American Opportunity Credit and the Lifetime Learning Credit.
American Opportunity Credit
The American Opportunity Credit gives taxpayers a tax credit to cover qualifying education expenses. Eligible taxpayers can reduce their tax liability by a dollar-for-dollar amount based on the amount they can claim under the credit. This credit covers 100% of the first $2,000 in adjusted qualified education expenses paid and 25% of any excess beyond that, up to a cap of $500. Thus, the maximum amount you can claim is $2,500. The amount you can claim begins to phase out or be reduced if your income exceeds $80,000 ($160,000 for joint returns).
To be eligible, you must be pursuing a degree or recognized credential, be enrolled at least half-time for one academic period during the tax year, and have no felony drug convictions.
If you qualify, you can claim the American Opportunity Credit for up to four tax years. Once you have claimed the credit for four years, it is no longer available for that student. However, you can claim it again for another student, such as a spouse or a dependent.
This credit is partially refundable. If you don’t owe any taxes — or this credit reduces your tax liability to zero — you can receive 40% of the remaining credit as a refund, up to a cap of $1,000.
Lifetime Learning Credit
Another continuing education tax deduction for Americans abroad is the Lifetime Learning Credit. Like the American Opportunity Credit, this tax benefit provides a dollar-for-dollar credit for qualifying education expenses. However, the rules for who is eligible and how much you can claim are different.
With the Lifetime Learning Credit, you can claim a credit of 20% of your adjusted qualified education expenses up to a maximum credit of $2,000. Unlike the American Opportunity Credit, this credit is not refundable.
Qualifying for the Lifetime Learning Credit is much simpler than the American Opportunity Credit. To qualify, you only need to be enrolled in a qualified educational institution for at least one academic period (a semester, trimester, quarter, summer school, etc.). You don’t have to be working toward a degree.
There is no limit to how many years you can claim this credit either. However, the $2,000 annual limit applies to each tax return, not each student. This means that if you have multiple members of your family who are eligible for this credit, you can only claim a combined total of $2,000 for all of them per year. The amount you can claim begins to phase out if your income exceeds $59,000 ($118,000 for joint returns).
American Opportunity Credit vs. Lifetime Learning Credit: Which Is Better?
While both the American Opportunity Credit and Lifetime Learning Credit can reduce your tax liability, they cannot be claimed for the same expenses or for the same student in the same tax year.
- The American Opportunity Credit is better for undergraduate students due to its higher maximum credit and refundable portion.
- The Lifetime Learning Credit is better for someone pursuing graduate studies or part-time education to enhance job skills.
Deductible Continuing Education Expenses for Expats
If you are eligible for either the American Opportunity Credit or Lifetime Learning Credit, you can claim tax credits to offset the following expenses:
- Tuition, fees, and other enrollment expenses paid to a qualifying educational institution
- Course materials such as books and supplies (this applies even if you did not buy these items from the school)
- Non-academic student activity fees paid to the school as a condition of enrollment
However, neither will cover:
- Room and board
- Insurance
- Transportation
- Medical costs (including student health fees)
Practical Tips for Expats Claiming Education Deductions
Track Your Expenses
Keep detailed records of all education-related costs, such as tuition, fees, books, and supplies. Using expense-tracking apps or spreadsheets can help you stay organized and ensure you have the documentation needed for your tax return.
Convert Currencies
If you’re paying education expenses in a foreign currency, it’s important to convert them accurately to US dollars. Use the exchange rate from the date of payment, and keep a record of the source you used for the conversion.
Verify Eligibility
Not all foreign schools qualify for US education credits. Check if your educational institution is eligible by confirming its participation in the US Department of Education’s Federal Student Aid programs.
Be Aware of Form 1098-T
Many foreign schools do not issue Form 1098-T, which is typically required for education credits. If this is the case, make sure you retain alternative documentation, such as enrollment records and receipts, to validate your claims.
Consult an Expat Tax Professional
Navigating US tax laws as an expat can be complex, especially when it comes to education deductions. A tax professional experienced with expat taxes can provide valuable guidance, ensure compliance, and help you maximize your tax savings.
Common Questions About Education Deductions for Expats
Can Expats Claim the Lifetime Learning Credit?
US expats can claim the Lifetime Learning Credit if they are enrolled in a qualified educational institution for at least one academic period.
What If I’m Studying for a Career Change?
Education expenses that qualify you for a new trade or business are not deductible. The IRS allows deductions for education that maintains or improves skills required in your current job or is mandated by your employer or law.
Are Travel Costs for Education Deductible While Living Abroad?
Travel expenses directly related to attending an eligible educational institution may be deductible if they are necessary for your education and not considered personal expenses. However, commuting costs and travel for personal reasons are not deductible.
Get the Answers You Need for Your Expat Taxes
We hope this guide has helped you understand how you can claim a continuing education tax deduction while living abroad. To learn more about your expat taxes, just download our free guide: 25 Things You Need to Know About US Expat Taxes.
At Greenback Expat Tax Services, we specialize in helping expats around the world manage their US tax obligations. Just contact us, and we’ll be happy to answer any questions you have.
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