Higher Education Tax Relief Act of 1995

Summary: Higher Education Tax Relief Act of 1995 - Amends the Internal Revenue Code to allow a tax deduction for the sum of qualified higher education expenses and interest on qualified higher education loans. Provides limitations on both amounts.  Allows such deduction in computing adjusted gross income.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Higher Education Tax Relief Act of 
1995''.

SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) Deduction Allowed.--Part VII of subchapter B of chapter 1 of 
the Internal Revenue Code of 1986 (relating to additional itemized 
deductions for individuals) is amended by redesignating section 220 as 
section 221 and by inserting after section 219 the following new 
section:

``SEC. 220. HIGHER EDUCATION TUITION AND FEES; INTEREST ON STUDENT 
              LOANS.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction an amount equal to the sum of--
            ``(1) the qualified higher education expenses, plus
            ``(2) interest on qualified higher education loans,
paid by the taxpayer during the taxable year.
    ``(b) Qualified Higher Education Expenses.--For purposes of this 
section--
            ``(1) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means tuition and fees required for 
                the enrollment or attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151,
                as an eligible student at an institution of higher 
                education.
                    ``(B) Exception for education involving sports, 
                etc.--Such term does not include expenses with respect 
                to any course or other education involving sports, 
                games, or hobbies unless such expenses--
                            ``(i) are part of a degree program, or
                            ``(ii) are deductible under this chapter 
                        without regard to this section.
                    ``(C) Exception for nonacademic fees.--Such term 
                does not include any student activity fees, athletic 
                fees, insurance expenses, or other expenses unrelated 
                to a student's academic course of instruction.
                    ``(D) Eligible student.--For purposes of 
                subparagraph (A), the term `eligible student' means a 
                student who meets the requirements of section 484(a)(1) 
                of the Higher Education Act of 1965 (20 U.S.C. 
                1091(a)(1)).
            ``(2) Dollar limitation.--
                    ``(A) In general.--The amount taken into account 
                under paragraph (1) for any taxable year shall not 
                exceed $10,000.
                    ``(B) Phase-in.--In the case of taxable years 
                beginning in 1996, 1997, 1998, and 1999, the following 
                amounts shall be substituted for `$10,000' in 
                subparagraph (A):

                    ``For taxable years
                                                         The substitute
                      beginning in:
                                                             amount is:
                          1996.......................          $2,000  
                          1997.......................           4,000  
                          1998.......................           6,000  
                          1999.......................          8,000.  
            ``(3) Limitation based on modified adjusted gross income.--
                    ``(A) In general.--If the modified adjusted gross 
                income of the taxpayer for the taxable year exceeds 
                $70,000 ($100,000 in the case of a joint return), the 
                amount which would (but for this paragraph) be taken 
                into account under paragraph (1) shall be reduced (but 
                not below zero) by the amount which bears the same 
                ratio to the amount which would be taken into account 
                as such excess bears to $20,000.
                    ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 1996, 
                the $70,000 and $100,000 amounts contained in 
                subparagraph (A) shall be increased by an amount equal 
                to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment under 
                        section 1(f)(3) for the calendar year in which 
                        the taxable year begins, except that section 
                        1(f)(3)(B) shall be applied by substituting 
                        `1995' for `1992'.
                    ``(C) Rounding.--If any amount as adjusted under 
                subparagraph (B) is not a multiple of $50, such amount 
                shall be rounded to the nearest multiple of $50 (or if 
                such amount is a multiple of $25, such amount shall be 
                rounded to the next highest multiple of $50).
                    ``(D) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means the adjusted 
                gross income of the taxpayer for the taxable year 
                determined--
                            ``(i) without regard to this section and 
                        sections 911, 931, and 933, and
                            ``(ii) after the application of sections 
                        86, 135, 219, and 469.
            ``(4) Institution of higher education.--The term 
        `institution of higher education' means an institution which--
                    ``(A) is described in section 481 of the Higher 
                Education Act of 1965 (20 U.S.C. 1088), and
                    ``(B) is eligible to participate in programs under 
                title IV of such Act.
    ``(c) Qualified Higher Education Loan.--For purposes of this 
section--
            ``(1) In general.--The term `qualified higher education 
        loan' means a loan to a student which is--
                    ``(A) made, insured, or guaranteed by the Federal 
                Government,
                    ``(B) made by a State or a political subdivision of 
                a State,
                    ``(C) made from the proceeds of a qualified student 
                loan bond under section 144(b), or
                    ``(D) made by an institution of higher education 
                (as defined in section 1201(a) of the Higher Education 
                Act of 1965 (20 U.S.C. 1141(a))).
            ``(2) Limitation.--
                    ``(A) In general.--The amount of interest on a 
                qualified higher education loan which is taken into 
                account under subsection (a)(2) shall be reduced by the 
                amount which bears the same ratio to such amount of 
                interest as--
                            ``(i) the proceeds from such loan used for 
                        qualified higher education expenses, bears to
                            ``(ii) the total proceeds from such loan.
                    ``(B) Qualified higher education expenses.--For 
                purposes of subparagraph (A), the term `qualified 
                higher education expenses' has the meaning given such 
                term by subsection (b), except that--
                            ``(i) such term shall include reasonable 
                        living expenses while away from home, and
                            ``(ii) the limitations of paragraphs (2) 
                        and (3) of subsection (b) shall not apply.
    ``(d) Coordination With Other Provisions.--
            ``(1) No double benefit.--
                    ``(A) In general.--No deduction shall be allowed 
                under subsection (a) for qualified higher education 
                expenses or interest on qualified higher education 
                loans with respect to which a deduction is allowed 
                under any other provision of this chapter.
                    ``(B) Savings bond exclusion.--A deduction shall be 
                allowed under subsection (a)(1) for qualified higher 
                education expenses only to the extent the amount of 
                such expenses exceeds the amount excludable under 
                section 135 for the taxable year.
            ``(2) Qualified residence interest.--If a deduction is 
        allowed under subsection (a)(2) for interest which is also 
        qualified residence interest under section 163(h), such 
        interest shall not be taken into account under section 163(h).
    ``(e) Special Rules.--
            ``(1) Election.--If a deduction is allowable under more 
        than one provision of this chapter with respect to qualified 
        higher education expenses, the taxpayer may elect the provision 
        under which the deduction is allowed.
            ``(2) Limitation on taxable year of deduction.--
                    ``(A) In general.--A deduction shall be allowed 
                under subsection (a)(1) for any taxable year only to 
                the extent the qualified higher education expenses are 
                in connection with attendance at an institution of 
                higher education during the taxable year.
                    ``(B) Certain prepayments allowed.--Subparagraph 
                (A) shall not apply to qualified higher education 
                expenses paid during a taxable year which are in 
                connection with attendance at an institution of higher 
                education which begins during the first 2 months of the 
                following taxable year.
            ``(3) Adjustment for certain scholarships and veterans 
        benefits.--The amount of qualified higher education expenses 
        otherwise taken into account under subsection (a)(1) with 
        respect to the education of an individual shall be reduced 
        (before the application of subsection (b)) by the sum of the 
        amounts received with respect to such individual for the 
        taxable year as--
                    ``(A) a qualified scholarship which under section 
                117 is not includable in gross income,
                    ``(B) an educational assistance allowance under 
                chapter 30, 31, 32, 34, or 35 of title 38, United 
                States Code, or
                    ``(C) a payment (other than a gift, bequest, 
                devise, or inheritance within the meaning of section 
                102(a)) for educational expenses, or attributable to 
                attendance at an eligible educational institution, 
                which is exempt from income taxation by any law of the 
                United States.
            ``(4) No deduction for married individuals filing separate 
        returns.--If the taxpayer is a married individual (within the 
        meaning of section 7703), this section shall apply only if the 
        taxpayer and his spouse file a joint return for the taxable 
        year.
            ``(5) Regulations.--The Secretary may prescribe such 
        regulations as may be necessary or appropriate to carry out 
        this section, including regulations requiring recordkeeping and 
        information reporting.''
    (b) Deduction Allowed in Computing Adjusted Gross Income.--Section 
62(a) of such Code is amended by inserting after paragraph (15) the 
following new paragraph:
            ``(16) Higher education tuition and fees.--The deduction 
        allowed by section 219.''
    (c) Conforming Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 of such Code is amended by striking the item 
relating to section 220 and inserting:

``Sec. 220. Higher education tuition and fees.
``Sec. 221. Cross reference.''
    (d) Effective Dates.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.