Student Loans and Tuition Tax Credits/Deductions

One thing I have never understood is why some clients believe they cannot claim tuition on their tax return if they receive the funds from student loans. At the same time, they will take out a loan to buy a car and be very forthright about claiming the sales tax.

I guess it's a misunderstanding of how things are paid.  When someone loans you money,  your obligation to repay that loan is instantaneous regardless of the fact that you negotiate a payment frequency and an end-point for those payments.  I guess some would surmise that they could not deduct the tuition immediately, but over the life of the loan. If that was the case,  they would have to keep track of every principal payment they make to determine the amount of tuition they can deduct.. That would be a huge administrative burden for the IRS to track.

With tuition,  the only time the source of funds becomes an issue is when it comes from scholarships, grants, and any other source of tax-free, unearned funds.  Otherwise, whether you get the tuition money from a loan or a gift from Aunt Sue,  it's the payment of the tuition that triggers the deduction.