Income limits increased.(p233)
Beginning in 2008, the amount of your Hope or lifetime learning credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim a credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return). This is an increase from the 2007 limits of $47,000 and $57,000 ($94,000 and $114,000 if filing a joint return). For more information, see Effect of the Amount of Your Income on the Amount of Your Credit
Maximum amount of Hope credit increased.(p233)
Beginning in 2008, the maximum amount of the Hope credit has increased to $1,800. This is an increase from the 2007 maximum amount of $1,650.
The amount of the Hope credit (per eligible student) is the sum of 100% of the first $1,200 of qualified education expenses you paid for the eligible student and 50% of the next $1,200 of qualified education expenses you paid for that student. For more information, see Figuring the Credit
under Information for Only the Hope Credit
Students in Midwestern disaster areas.(p233)
The following changes apply only to students attending an eligible educational institution in a Midwestern disaster area in the states of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin.
This chapter discusses two tax credits (referred to here as education credits) available to persons who pay expenses for higher education. They are:
- The Hope credit, and
- The lifetime learning credit.
The chapter will do the following.
- Give you general information that applies to both of the credits.
- Give you specific information about each of the credits.
- Help you choose which of the credits to claim.
- Show you how to figure the credit you choose.
For each student, you can elect for any year only one of the credits. For example, if you elect to take the Hope credit for a child on your 2008 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2008.
If you are eligible to claim the Hope credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. For 2008, if the total qualified education expenses for a student are less than $9,000, it will generally be to your benefit to claim the Hope credit.
If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the Hope credit for one student and the lifetime learning credit for another student in the same year.
|Table 35-1. Comparison of Education Credits|
|Hope Credit|| Lifetime Learning Credit|
|Up to $1,800 credit ($3,600 if a student in a Midwestern disaster area) per eligible student || Up to $2,000 credit ($4,000 if a student in a |
Midwestern disaster area) per return
|Available ONLY until the first 2 years of postsecondary education are completed || Available for all years of postsecondary |
education and for courses to acquire or
improve job skills
|Available ONLY for 2 years per eligible student || Available for an unlimited number of years |
|Student must be pursuing an undergraduate degree or other recognized educational credential || Student does not need to be pursuing a degree |
or other recognized education credential
|Student must be enrolled at least half time for at least one academic period beginning during the year || Available for one or more courses |
|No felony drug conviction on student's record || Felony drug conviction rule does not apply|taxmap/pub17/p17-183.htm#TXMP2f351caf
There are several differences between these two credits. For example, you can claim the Hope credit based on the same student's expenses for no more than 2 years. However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. The differences between the two credits are summarized in Table 35-1
You may want to see:
Publication 970 Tax Benefits for Education Form (and Instructions) 8863: Education Credits (Hope and Lifetime Learning Credits)taxmap/pub17/p17-183.htm#en_us_publink100034994
Several rules are common to both education credits. These are discussed below.taxmap/pub17/p17-183.htm#en_us_publink100034995
The following rules will help you determine if you are eligible to claim an education credit on your tax return.taxmap/pub17/p17-183.htm#en_us_publink100034996
Generally, you can claim an education credit if all three of the following requirements are met.
- You pay qualified education expenses of higher education.
Note. Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you.
- You pay the education expenses for an eligible student.
- The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
You may find Figure 35-A
, at the end of the chapter, helpful in determining if you can claim an education credit on your tax return.
You cannot claim an education credit for 2008 if any of the following apply.
- Your filing status is married filing separately.
- You are listed as a dependent in the Exemptions section on another person's tax return (such as your parents'). See Who Can Claim a Dependent's Expenses, later.
- Your MAGI is $58,000 or more ($116,000 or more in the case of a joint return). MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit.
- You (or your spouse) were a nonresident alien for any part of 2008 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.
- You claim a tuition and fees deduction for the same student in 2008.
The education credits are based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, a credit is allowed for qualified education expenses paid in 2008 for an academic period beginning in 2008 or in the first 3 months of 2009.
For example, if you paid $1,500 in December 2008 for qualified tuition for the Spring 2009 semester beginning in January 2009, you may be able to use that $1,500 in figuring your 2008 credit. taxmap/pub17/p17-183.htm#en_us_publink100035000
An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. taxmap/pub17/p17-183.htm#en_us_publink100035001
You can claim an education credit for qualified education expenses paid with the proceeds of a loan. Use the expenses to figure the education credit for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. taxmap/pub17/p17-183.htm#en_us_publink100035002
You can claim an education credit for qualified education expenses not refunded when a student withdraws. taxmap/pub17/p17-183.htm#en_us_publink100035003
For purposes of an education credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. taxmap/pub17/p17-183.htm#en_us_publink100035004
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 (FSA) programs.taxmap/pub17/p17-183.htm#en_us_publink100035005
Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.
In the following examples, assume that each student is an eligible student at an eligible educational institution.taxmap/pub17/p17-183.htm#en_us_publink100035006
Jackson is a sophomore in University V's degree program in dentistry. This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense.taxmap/pub17/p17-183.htm#en_us_publink100035007
Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Donna bought hers at College W's bookstore. Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution.taxmap/pub17/p17-183.htm#en_us_publink100035008
When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. No portion of the fee covers personal expenses. Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Therefore, it is a qualified expense.taxmap/pub17/p17-183.htm#en_us_publink100096366
The definition of qualified education expenses is expanded for students in a Midwestern disaster area. In addition to tuition and fees required for enrollment or attendance at an eligible educational institution, qualified education expenses for a student in a Midwestern disaster area include the following.
- Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution
- For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution.
- For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the following two amounts.
- The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
- The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
You will need to contact the eligible educational institution for qualified room and board costs.
You cannot do any of the following.
- Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses.
- Claim an education credit in the same year you are claiming a tuition and fees deduction for the same student.
- Claim a Hope credit and a lifetime learning credit based on the same qualified education expenses.
- Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP).
- Claim a credit based on qualified education expenses paid with a tax-free scholarship, grant, or employer-provided educational assistance. See Adjustments to Qualified Education Expenses, next.
If you pay qualified education expenses with certain tax-free funds, you cannot claim a credit for those amounts. You must reduce the qualified education expenses by the amount of any tax-free educational assistance and refund(s) you received. taxmap/pub17/p17-183.htm#en_us_publink100035012
- Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Publication 970),
- Pell grants (see chapter 1 of Publication 970),
- Employer-provided educational assistance (see chapter 11 of Publication 970),
- Veterans' educational assistance (see chapter 1 of Publication 970), and
- Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.
Qualified education expenses do not include expenses for which you, or someone else who paid qualified education expenses on behalf of a student, receive a refund. For more information, see Refunds in chapters 2 and 3 of Publication 970.taxmap/pub17/p17-183.htm#en_us_publink100035014
Do not reduce qualified education expenses by amounts paid with funds the student receives as:
- Payment for services, such as wages,
- A loan,
- A gift,
- An inheritance, or
- A withdrawal from the student's personal savings.
Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations.
- The use of the money is restricted to costs of attendance (such as room and board) other than qualified education expenses.
- The use of the money is not restricted and is used to pay education expenses that are not qualified (such as room and board).
Jackie paid $3,000 for tuition and $5,000 for room and board at University X. The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan.
The terms of the scholarship state that it may be used to pay any of Jackie's college expenses. Because she applied it toward her tuition, the scholarship is tax free. Therefore, for purposes of figuring an education credit (either Hope or lifetime learning), she must first use the $2,000 scholarship to reduce her tuition (her only qualified education expense). The student loan is not tax-free educational assistance, so she does not use it to reduce her qualified expenses. Jackie is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship).taxmap/pub17/p17-183.htm#en_us_publink100035016
The facts are the same as in Example 1, except that Jackie uses the $2,000 scholarship to pay room and board, and, therefore, reports her entire scholarship as income on her tax return. In this case, the scholarship is allocated to expenses other than qualified education expenses. Jackie is treated as paying the entire $3,000 tuition with other funds and can figure her education credit on the entire $3,000.taxmap/pub17/p17-183.htm#en_us_publink100035017
Qualified education expenses do not include amounts paid for:
This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.
Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. However, if the course of instruction or other education is part of the student's degree program, these expenses can qualify. taxmap/pub17/p17-183.htm#en_us_publink100035019
Some eligible educational institutions combine all of their fees for an academic period into one amount. If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition Statement. See Figuring the Credit
, under the specific information for either the Hope
or lifetime learning credit
, for more information about Form 1098-T.
If there are qualified education expenses for your dependent for a year, either you or your dependent, but not both of you, can claim an education credit for your dependent's expenses for that year.
For you to claim an education credit for your dependent's expenses, you must also claim an exemption for your dependent. You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c.
|IF you...||THEN only...|
|claim an exemption on your tax return for a dependent who is an eligible student||you can claim an education credit based on that dependent's expenses. The dependent cannot claim a credit.|
|do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) ||the dependent can claim an education credit. You cannot claim a credit based on this dependent's expenses.|
If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Include these expenses when figuring the amount of your education credit.
Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent.
If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of an education credit. If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring an education credit. taxmap/pub17/p17-183.htm#en_us_publink100035024
Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. taxmap/pub17/p17-183.htm#en_us_publink100035025
In 2008, Ms. Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. For purposes of claiming an education credit, Todd is treated as receiving the money as a gift from his grandmother and, in turn, paying his qualified education expenses himself.
Unless an exemption for Todd is claimed on someone else's 2008 tax return, only Todd can use the payment to claim an education credit.
If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2008 tax return, whoever claims the exemption may be able to use the expenses to claim an education credit. If anyone else claims an exemption for Todd, Todd cannot claim an education credit.taxmap/pub17/p17-183.htm#en_us_publink100035026
When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1 of Publication 970. taxmap/pub17/p17-183.htm#en_us_publink100035027
The amount of your education credit is phased out (gradually reduced) if your MAGI is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim an education credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return). taxmap/pub17/p17-183.htm#en_us_publink100035028
For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return.taxmap/pub17/p17-183.htm#en_us_publink100035029
If you file Form 1040A, your MAGI is the AGI on line 22 of that form.taxmap/pub17/p17-183.htm#en_us_publink100035030
If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any:
- Foreign earned income exclusion,
- Foreign housing exclusion,
- Foreign housing deduction,
- Exclusion of income for bona fide residents of American Samoa, and
- Exclusion of income for bona fide residents of Puerto Rico.
If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 7–13 of Form 8863.taxmap/pub17/p17-183.htm#en_us_publink100035032
If, after you file your 2008 tax return, you or someone else receives tax-free educational assistance for, or a refund of, an expense you used to figure an education credit on that return, you may have to repay all or part of the credit. You must refigure your education credit(s) for 2008 as if the assistance or refund was received in 2008. Subtract the amount of the refigured credit from the amount of the credit you claimed. The result is the amount you must repay. You add the repayment (recapture) to your tax liability for the year in which you receive the assistance or refund. See the instructions for your tax return for that year to find out how to report the recapture amount. Your original 2008 tax return does not change.