With many students going to and returning to classes, I wanted to remind you that you want to claim your Hope Scholarship Credit come tax season.
What is the Hope Scholarship Credit?
The Hope Credit is an educational tax credit that can reduce your income tax.
The IRS has specific guidelines to qualify for the Hope Credit. They also adjust the maximum amount of the credit occasionally.
Income limits increased. The amount of your Hope credit for 2008 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).
Maximum amount of Hope credit increased. Beginning in 2008, the maximum amount of the Hope credit has increased to $1,800 ($3,600 if a student in a Midwestern disaster area). 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 ($2,400 if a student in a Midwestern disaster area) of qualified education expenses you paid for the eligible student and 50% of the next $1,200 ($2,400 if a student in a Midwestern disaster area) of qualified education expenses you paid for that student.
Source: IRS Publication 970
Note: You cannot claim both Lifetime Learning Credit and Hope Credit for the same person.
In 2009 and 2010, the American Recovery and Reinvestment Act temporaily expands the Hope Credit (calling it American Opportunity Credit) to include more students and parents.
The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return.
Source: IRS Publication 970
Hat tip to reader Mneiae for mentioning the changes in 2009 and 2010!
What’s the Difference Between the Lifetime Learning Credit and the Hope Scholarship Credit?
The Hope Credit requires you to be at least a half time student in the first two years of college. The Lifetime Learning Credit applies for anyone seeking post secondary education, whether it is a degree or a class to improve your career skills. The Hope Credit requires that you work towards a degree to claim it on your taxes.
What’s Best Option for Me Tax Wise?
I’m not a financial planner and I don’t know your personal circumstances. For more information on the Lifetime Learning Credit and other tax benefits for college students, check out the IRS’ website.
The IRS has information to help you determine which tax credit is best for you and your family. Did you know that there is a tuition and fees deduction for your education expenses? The IRS has information on that as well. Choose the option that will give you the lower tax.
Photo Credit: stopnlook