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previous page Previous Page: Publication 17 - Your Federal Income Tax - Example
next page Next Page: Publication 17 - Your Federal Income Tax - Information for Only the Hope Credit
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taxmap/pub17/p17-183.htm#en_us_publink100034989

Chapter 35
Education Credits(p233)

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previous topic occurrence Hope and Lifetime Learning Credits next topic occurrence


What's New(p233)


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taxmap/pub17/p17-183.htm#en_us_publink100034991

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, later.
taxmap/pub17/p17-183.htm#en_us_publink100048745

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.
taxmap/pub17/p17-183.htm#en_us_publink100090972

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.
taxmap/pub17/p17-183.htm#TXMP53f8cdd3
This chapter discusses two tax credits (referred to here as education credits) available to persons who pay expenses for higher education. They are: The chapter will do the following.
taxmap/pub17/p17-183.htm#en_us_publink100034992

Can you claim both education credits this year.(p233)


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Can you claim both education credits this year.

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.
taxmap/pub17/p17-183.htm#f10311g3602
Table 35-1. Comparison of Education Credits
Hope CreditLifetime 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#en_us_publink100034993

Differences between the Hope and lifetime learning credits.(p233)


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previous topic occurrence Differences between the Hope and lifetime learning credits. next topic occurrence

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.

taxmap/pub17/p17-183.htm#TXMP2f351caf

Useful items

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

Information for Both the Hope and Lifetime Learning Credits(p233)


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Several rules are common to both education credits. These are discussed below.
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Can You Claim a Credit(p233)


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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

Who Can Claim a Credit(p233)


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Generally, you can claim an education credit if all three of the following requirements are met.
"Qualified education expenses" are defined later under What Expenses Qualify. A "dependent for whom you claim an exemption" is defined later under Who Can Claim a Dependent's Expenses. "Eligible students" are defined differently for each credit. See Who Is an Eligible Student under the specific information for either the Hope or lifetime learning credit.
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.
taxmap/pub17/p17-183.htm#en_us_publink100034998

Who Cannot Claim a Credit(p234)


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You cannot claim an education credit for 2008 if any of the following apply.
taxmap/pub17/p17-183.htm#en_us_publink100034999

What Expenses Qualify(p234)


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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

Academic period.(p234)


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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

Paid with borrowed funds.(p234)


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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

Student withdraws from class(es).(p234)


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You can claim an education credit for qualified education expenses not refunded when a student withdraws.
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Qualified Education Expenses(p234)


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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.
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Eligible educational institution.(p234)


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previous topic occurrence Postsecondary Educational Institution next topic occurrence

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

Related expenses.(p234)


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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

Example 1.(p234)

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

Example 2.(p234)

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

Example 3.(p234)

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

Students in Midwestern disaster areas.(p234)


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previous topic occurrence Students in Midwestern disaster areas. next topic occurrence

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.
  1. Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution
  2. For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution.
  3. 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.
    1. 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.
    2. 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.
taxmap/pub17/p17-183.htm#en_us_publink100035009

No Double Benefit Allowed(p234)


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You cannot do any of the following.
taxmap/pub17/p17-183.htm#en_us_publink100035011

Adjustments to Qualified Education Expenses(p234)


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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 educational assistance.(p235)


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Tax-free educational assistance.

This includes:
taxmap/pub17/p17-183.htm#en_us_publink100035013

Refunds.(p235)


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previous topic occurrence Tax Refund next topic occurrence

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

Amounts that do not reduce qualified education expenses.(p235)


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Do not reduce qualified education expenses by amounts paid with funds the student receives as:
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.
taxmap/pub17/p17-183.htm#en_us_publink100035015

Example 1.(p235)

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

Example 2.(p235)

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

Expenses That Do Not Qualify(p235)


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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.
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Sports, games, hobbies, and noncredit courses.(p235)


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previous topic occurrence Sports, games, hobbies, and noncredit courses. next topic occurrence

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

Comprehensive or bundled fees.(p235)


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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.
taxmap/pub17/p17-183.htm#en_us_publink100035020

Who Can Claim a Dependent's Expenses(p235)


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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 studentyou 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.
taxmap/pub17/p17-183.htm#en_us_publink100035021

Expenses paid by dependent.(p235)


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Expenses paid by dependent.

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.
Deposit
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.
taxmap/pub17/p17-183.htm#en_us_publink100035023

Expenses paid by you.(p235)


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Expenses paid by you.

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

Expenses paid by others.(p235)


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Expenses paid by others.

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

Example.(p235)

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

Tuition reduction.(p235)


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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

Effect of the Amount of Your Income on the Amount of Your Credit(p236)


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previous topic occurrence Effect of the Amount of Your Income on the Amount of Your Credit next topic occurrence

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

Modified adjusted gross income (MAGI).(p236)


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For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return.
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MAGI when using Form 1040A.(p236)
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If you file Form 1040A, your MAGI is the AGI on line 22 of that form.
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MAGI when using Form 1040.(p236)
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If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any:
  1. Foreign earned income exclusion,
  2. Foreign housing exclusion,
  3. Foreign housing deduction,
  4. Exclusion of income for bona fide residents of American Samoa, and
  5. Exclusion of income for bona fide residents of Puerto Rico.
taxmap/pub17/p17-183.htm#en_us_publink100035031

Phaseout.(p236)


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Phaseout.

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

When Must the Credit Be Repaid (Recaptured)(p236)


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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.
previous pagePrevious Page: Publication 17 - Your Federal Income Tax - Example
next pageNext Page: Publication 17 - Your Federal Income Tax - Information for Only the Hope Credit
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication