Is there a tax break for pursuing another degree like mba while having a fulltime job? What is the IRS rule?

Answer 1

The IRS rule is that education which improves CURRENT job skills is deductable. Education which prepares you for a new job is not deductable. Medical school is never deductable. An MBA, assuming you currently work in business, should be deductable. Let's put it this way, IRS employees deduct the cost of an MBA.

Answer 2

Here is from IRS publication 17.
Qualifying Work- Related Education
You can deduct the costs of qualifying work- related education as business expenses. This is education that meets at least one of the following two tests.
*The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.
*The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it:
*Is needed to meet the minimum educational requirements of your present trade or business, or
*Is part of a program of study that will qualify you for a new trade or business.

You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.

If you qualify, you can deduct the expenses if you itemize your deductions. On schedule A (Form 1040), these employee business expenses are subject to 2% AGI limit. That is you will be able to deduct the expenses more than 2% of your Adjusted Gross Income.

Answer 3

You can probably take at least some of your expenses either as an education deduction, or for a Lifetime Learning Credit. See IRS Publication 970 for more detailed info - you can download it at irs.gov.