While attending college, can I deduct off-campus housing?

October, 16 2023 by Steve Banner, EA, MBA

The tax law offers many programs to support college education and help offset the costs that taxpayers face. For example, if your income does not exceed certain threshold amounts, you may be able to get tax credits for your college tuition and required enrollment fees in addition to other expenses you paid, such as course-related books, supplies, and equipment. However, the cost of your housing – whether on campus or off – is not included in the list of expenses that qualify for a tax credit.

On the other hand, if you have financed your college education by taking out a student loan, you may be able to claim a small tax benefit for your housing costs. This benefit is in the form of a deduction for the interest you pay on your student loan. If the purpose of the loan was solely to pay for your education expenses, you can generally deduct your interest payments related to your qualified expenses. Provided that you were enrolled at least half-time in a degree or certificate program, your qualified expenses also include room and board in addition to the amounts you paid for your tuition, fees, books, supplies, and equipment.

But this is not to say that you can rent a penthouse downtown, dine on lobster and caviar every night and expect that Uncle Sam will help pay your bills. The amount that you can include for room and board in relation to your student loan interest deduction is limited. The limit is based on the average cost of attendance (COA) for each academic year that colleges must declare for federal financial aid purposes. This COA amount for each college is the total of the estimated tuition and fees, books and supplies, room and board, travel, and personal and miscellaneous expenses that a student is likely to encounter at that college for that year. This COA figure is also used for purposes of the student loan interest deduction. When calculating your student loan interest deduction, you cannot include any amounts that exceed the room and board portion of your college’s COA for that academic period.

For example, in the COA that the University of North Texas¹ (UNT) has published for the 2023-24 Academic Year, the housing and food component for Graduate students who live on campus is $10,805. For students who live off campus, their estimated housing and food amount is $10,680. Thus, if you are planning to take out a private loan to attend UNT in the 2023-24 year, you should be aware that any amounts you spend on room and board off campus that exceed $10,680 will not qualify as education expenses for your student loan interest deduction.

Example 1: Let’s say Wendy borrowed $25,000 at 5% interest to fund her graduate degree at UNT while living off campus. During the year she spent the full amount on eligible expenses relating to her studies, including $10,680 for room and board. She paid a total of $1,250 in interest ($25,000 x .05). The full $1,250 of her interest is deductible, of which the portion of her deduction that was related to her room and board was ($10,680/$25,000 x $1,250 =) $534.

If Wendy lived on campus, the portion of interest related to her room and board would have been ($10,805/$25,000 x $1,250 =) $540.

The only exception to the above limitation would be if you lived in off-campus housing that was owned or operated by the university, and the amount you were charged for room and board was higher than $10,680. In that case, you could include the full amount you paid for room and board as a qualified education expense for the purposes of the student loan interest deduction.

Coming back to our original question, under some circumstances, you can indeed deduct off-campus housing – but the amount of the benefit is limited.

[1] https://financialaid.unt.edu/costs