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Publication 970
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Appendices(p74)

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The following appendices are provided to help you claim the education benefits that will give you the lowest tax.
  1. Appendix A—An Illustrated Example of Education Credits including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2012.
  2. Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. It is intended only as a guide. Look in this publication for more complete information.
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Appendix A. Illustrated Example of Education Credits(p74)

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Dave and Valerie Jones are married and on their 2012 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 320-33-3343) and Carey (age 18, social security number: 320-33-3333). Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000.
Sean enrolled as a full-time graduate student in August 2012 at California State College. He graduated with his bachelor's degree in 2011 and did not attend school from January 2012 through July 2012. His parents claimed the Hope scholarship for Sean for 2008 and the American opportunity credit for Sean for 2009, 2010, and 2011.
Carey enrolled full time as a freshman at the same college in January 2012 to begin working on her bachelor's degree.
In 2012, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2012.
Dave and Valerie figure their education credits by completing Form 8863. They begin Form 8863 on page 2 before completing Part I on page 1. Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. They use the information from Carey's Form 1098-T to complete Part III, lines 20, 21, and 22, (1), (2), (3), and (4).
The Joneses decide to complete Part III for Carey first and complete questions 23-26. The Joneses complete line 27-30 and carry over the amount of $2,500 entered on line 30, Part III to Part I, line 1.
The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. They enter the amount from line 8, $1,000, on line 66 of their Form 1040.
The Joneses complete a separate Part III for their son Sean. They use the information from Sean's Form 1098-T to complete lines 20-22, (1), (2), (3), and (4). They then complete line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. They figure their line 31 adjusted qualified education expenses for Sean to be $7,000.
The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2012 to be $1,400 (line 12). They cannot claim the full amount because their MAGI of $110,000 is greater than $104,000. They enter the reduced amount of $980 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. The $980 is added to their nonrefundable American opportunity credit ($1,500 on line 8 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,480. The Joneses enter $1,000 on line 13 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,480 on line 13 of the Credit Limit Worksheet. They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040.
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Adjusted Qualified Education Expenses Worksheet
1.Total qualified education expenses paid for or on behalf of the student in 2012 for the academic period8,500
2.Less adjustments: 
 a.Tax-free educational assistance received in 2012 allocable to the academic period 0 
 b.Tax-free educational assistance received in 2013 (and before you file your 2012 tax return) allocable to the academic period 0 
 c.Refunds of qualified education expenses paid in 2012 if the refund is received in 2012 or in 2013 before you file your 2012 tax return  0 
3.Total adjustments (add lines 2a, 2b, and 2c)0
4.Adjusted qualified education expenses. Subtract line 3 from line 1. If zero or less, enter -0-8,500


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Adjusted Qualified Education Expenses Worksheet
1.Total qualified education expenses paid for or on behalf of the student in 2012 for the academic period7,000
2.Less adjustments: 
 a.Tax-free educational assistance received in 2012 allocable to the academic period 0 
 b.Tax-free educational assistance received in 2013 (and before you file your 2012 tax return) allocable to the academic period 0 
 c.Refunds of qualified education expenses paid in 2012 if the refund is received in 2012 or in 2013 before you file your 2012 tax return  0 
3.Total adjustments (add lines 2a, 2b, and 2c)0
4.Adjusted qualified education expenses. Subtract line 3 from line 1. If zero or less, enter -0-7,000


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Credit Limit Worksheet Form 8863
Nonrefundable Credit Worksheet
1.Enter the amount from Form 8863, line 181.980
2.Lines 2–7 are reserved for future use  
8.Enter the amount from Form 8863, line 98.1,500
9.Add lines 1 and 89.2,480
10.Enter the amount from:
  • Form 1040, lines 46; or
  • Form 1040A, line 28
10.1,000
11.Enter the amount from either:
  • Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or
  • Form 1040A, lines 29 and 30
11.0
12.Subtract line 11 from line 1012.1,000
13. Enter the smaller of line 9 or line 12 here and on Form 8863, line 1913.1,000


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Appendix B. Highlights of Education Tax Benefits for Tax Year 2012

This chart highlights some differences among the benefits discussed in this publication. See the text for definitions and details. Do not rely on this chart alone.

Caution: You generally cannot claim more than one benefit for the same education expense.
 Scholarships,
Fellowships,
Grants, and
Tuition
Reductions
American Opportunity CreditLifetime Learning CreditStudent Loan Interest DeductionTuition and Fees DeductionCoverdell ESAQualified Tuition Program (QTP)Education Exception to Additional Tax on Early IRA DistributionsEducation Savings Bond ProgramEmployer-
Provided Educational Assistance
Business Deduction for Work-Related Education
What is your
benefit?
Amounts received may not be taxable

Credits can reduce the amount of tax you have to pay.
    
40% of the credit may be refundable
(limited to $1,000 per student).
Credits can reduce amount of tax you must payCan deduct interest paidCan deduct expensesEarnings not
taxed
Earnings not taxedNo 10%
additional tax on early distribution
Interest not taxedEmployer benefits not taxedCan deduct expenses
What is the annual limit?None$2,500 credit per student$2,000 credit per tax return



$2,500 deduction$4,000 deduction$2,000 contribution per beneficiaryNoneAmount of qualified
education expenses
Amount of qualified
education expenses
$5,250 exclusionAmount of qualifying work-related education expenses
What expenses
qualify besides
tuition and required enrollment fees?
Course-related expenses such as fees, books, supplies, and equipmentCourse-related books, supplies, and equipmentAmounts paid for required books, etc., that must be paid to the educational institution, etc., ARE required feesBooks
Supplies
Equipment

Room & board

Transportation

Other necessary expenses
NoneBooks
Supplies
Equipment

Expenses for special needs services

Payments to QTP

Higher education:
 Room & board if
 at least half-time
 student

Elem/sec (K–12) education:
 Tutoring
 Room & board
 Uniforms
 Transportation
 Computer
 access
 Supplementary
 expenses
Books
Supplies
Equipment

Room & board if
at least half-time student

Expenses for special needs services
Books
Supplies
Equipment

Room & board if
at least half-time student

Expenses for special needs services
Payments to Coverdell ESA

Payments to QTP
Books
Supplies
Equipment
Transportation

Travel

Other necessary expenses
 Scholarships,
Fellowships,
Grants, and
Tuition
Reductions
American Opportunity CreditLifetime Learning CreditStudent Loan Interest DeductionTuition and Fees DeductionCoverdell ESAQualified Tuition Program (QTP)Education Exception to Additional Tax on Early IRA DistributionsEducation Savings Bond ProgramEmployer-
Provided Educational Assistance
Business Deduction for Work-Related Education
What education qualifies?Undergraduate & graduate

K–12
Undergraduate and graduateUndergraduate & graduate

Courses to acquire or improve job skills


Undergraduate & graduateUndergraduate & graduateUndergraduate & graduate

K–12
Undergraduate & graduateUndergraduate & graduateUndergraduate & graduateUndergraduate & graduateRequired by employer or law to keep present job, salary, status

Maintain or improve job skills
What are some of the other
conditions that
apply?
Must be in degree or vocational program

Payment of tuition and required fees must be allowed under the grant
Can be claimed for only 4 tax years (which includes years Hope credit claimed)

Must be enrolled at least half-time in degree program

No felony drug conviction(s)

Must not have completed first 4 years of postsecondary education before end of preceding tax year.
No other conditionsMust have been at least half-time
student in degree program
Cannot claim both deduction & education credit for same student in same yearAssets must be distributed at age 30 unless special
needs beneficiary
No other conditionsNo other conditionsApplies only to qualified series
EE bonds issued after 1989 or series I bonds
No other conditionsCannot be to
meet minimum educational requirements of present trade/business

Cannot qualify
you for new trade/business

In what income
range do benefits
phase out?
No phaseout$80,000 – $90,000

$160,000 – $180,000 for joint returns
$52,000 – $62,000

$104,000 – $124,000 for joint returns
$60,000 – $75,000

$125,000 –
$155,000 for
joint returns
$60,000 – $80,000

$130,000 –
$160,000 for
joint returns
$95,000 – $110,000

$190,000 – $220,000 for
joint returns
No phaseoutNo phaseout$72,850 – $87,850

$109,250 – $139,250 for
joint and qualifying widow(er) with a dependent child returns
No phaseoutNo phaseout
Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses.