E-Newsletter: Tax Law

Education Tax Credits

The Taxpayer Relief Act of 1997 (TRA) contains a number of provisions designed to help families and individuals who are paying or saving for higher education expenses. The TRA added section 25A to the Internal Revenue Code. This section provides for the Hope Scholarship Credit and Lifetime Learning Credit.

Both the Hope Scholarship Credit and Lifetime Learning Credit provide for nonrefundable credits for “qualified tuition and related expenses,” which means tuition and fees that are required for the enrollment or attendance of an eligible student at an eligible educational institution. Charges for books and supplies are only considered qualified tuition and related expenses if they are paid to the eligible educational institution as a condition of enrollment or attendance. Charges or fees associated with room and board, meals, transportation and similar personal and living expenses are not included in the definition of qualified tuition and related expenses. A taxpayer is not permitted to both claim a Hope Scholarship Credit and a Lifetime Learning Credit for the same student in the same taxable year.

Hope Scholarship Credit

The Hope Scholarship Credit permits a taxpayer to claim a nonrefundable credit of 100% of the first $1,000 and 50% of the next $1,000 of qualified tuition and related expenses paid for the first two years of a student’s postsecondary education in a degree or certificate program. These amounts are adjusted for inflation; for the 2008 tax year it is $1,200. Thus, for the 2008 tax year, the maximum Hope Scholarship Credit is $1,800 per eligible student. A student cannot claim the Hope Scholarship Credit on his or her own tax return if a parent or someone else claims the student as a dependent. This credit is phased out for taxpayers with certain adjusted gross incomes. For 2008, the phase out is for adjusted gross income of between $48,000 and $58,000 (single taxpayers) and $96,000 and $106,000 (joint returns). The Hope Scholarship Credit is not available for eligible students who have been convicted of a felony drug offense.

Lifetime Learning Credit

Taxpayers can claim a nonrefundable Lifetime Learning Credit of up to $2,000 per year per taxpayer for qualified tuition and related expenses paid on behalf of the taxpayer, the taxpayer’s spouse or the taxpayer’s dependent(s). This amount applies per taxpayer, regardless of the number of students, and it is not adjusted for inflation. Unlike the Hope Scholarship Credit, which only applies to the first two years of a student’s postsecondary education, a taxpayer can claim the Lifetime Learning Credit for an unlimited number of years. The Lifetime Learning Credit is phased out for taxpayers with certain adjusted gross incomes. For 2008, the phase out is for taxpayers with adjusted gross income of between $48,000 and $58,000 (single filers) and $96,000 and $106,000 (joint filers).

Preparing for a Meeting with Your Tax Attorney

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Preparing for a Meeting with your Tax Attorney

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