Dear Tax Talk:
My wife attended the University of Madrid last summer. Is her tuition tax deductible like it would be at an American university?
-- Greg

Dear Greg,
While there are numerous tax benefits for higher education expenses, the rules don't necessarily provide for the student enjoying a summer in sizzling Madrid at taxpayers' expense.

There are basically three types of tax benefits for higher education expenses:

1. The Hope Credit
2. The Lifetime Learning Credit
3. The tuition and fees deduction

While your wife may have had an excellent opportunity to study in Madrid, the rules governing these benefits could be subject to taxpayer abuse if a tax credit or deduction were allowed for just any foreign university studies.

In order to qualify, the tuition and fees have to be paid to an eligible education institution. An eligible educational institution is any college, university, vocational school or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited public, nonprofit and proprietary (privately-owned, profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution. Certain educational institutions located outside the United States also participate in the U.S. Department of Education's Federal Student Aid, or FSA, programs.

While the rules do include certain foreign schools, a search of the Web finds very limited choices. Foreign education could still be deductible as an itemized deduction if it is work-related. Chapter 12 of Publication 970 provides additional detail on claiming education expenses as work-related.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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