| Tax credits / HOPE credit and Lifetime Learning credit for qualified tuition and related expenses of higher education |  |
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The HOPE credit and the Lifetime
Learning credit for 'qualified tuition and related expenses' (see below)
may allow you to turn part of the higher education expenses you incur
for yourself, your spouse, or your dependents into tax savings. The maximum HOPE credit a taxpayer
may claim is $1,500 per year per student, for the first two years
of undergraduate education at an eligible educational institution. The
maximum HOPE credit amount will be adjusted for inflation after 2001.
The maximum Lifetime Learning credit that may be claimed is $1,000 per
year ($2,000 per year after 2002) per taxpayer, for any post-high
school education (including graduate-level courses and courses to
acquire or improve job skills) at an eligible educational institution.
The maximum Lifetime Learning credit will not be adjusted for inflation. Generally, eligible educational
institutions are accredited schools offering credit toward a bachelor's
or associate's degree or other recognized post-high school credential,
and certain vocational schools. The HOPE credit is available only
for the qualified tuition and related expenses of an eligible student,
i.e., a student who's enrolled in a degree or certificate program at an
eligible educational institution on at least a half-time basis, and who
has never been convicted of a federal or state felony drug offense. The
Lifetime Learning credit is not subject to the eligible student/felony
drug offense restrictions, and may be available for a student taking
only one course. The HOPE credit and the Lifetime
Learning credit aren't allowed for an expense that's otherwise
deductible, and may not be claimed in a year when the student receives
any tax-exempt distribution from an education individual retirement
account (that is, an education IRA). The HOPE/Lifetime Learning credits
may not be claimed in the same tax year for the same expenses, but each
may be claimed for different expenses. For example, in the same tax
year, a taxpayer may claim the HOPE credit for the qualified tuition and
related expenses of one or more qualifying dependents, and may claim the
Lifetime Learning credit for the qualified tuition and related expenses
incurred for himself. In order to be eligible for the HOPE
credit or the Lifetime Learning credit for a tax year, qualified tuition
and related expenses must be paid during that tax year for education
furnished during an academic period (e.g., semester) that starts within
that tax year or within the first three months of the following year.
Under this rule, taxpayers have a timing option. For example, for a
semester beginning in Jan. of Year 2, a taxpayer may pay the expenses in
Year 1 or Year 2. The credit will be available in whichever year the
payment is made. The HOPE/Lifetime Learning credits
are nonrefundable—i.e., they can reduce regular income taxes to zero
but cannot result in the receipt of a refund. For 2000 and 2001, they
can also be used to reduce the alternative minimum tax to zero. After
2001, the credits will be allowed only to the extent that the taxpayer's
regular income tax liability exceeds his or her tentative minimum tax. If the expenses on which the
HOPE/Lifetime Learning credits are based are later refunded, the credits
may have to be recaptured—i.e., the tax for the refund year may be
increased to account for a recomputed credit for the earlier year. As noted above, the HOPE/Lifetime
Learning credits are based on the payment of qualified tuition and
related expenses. These are the expenses for tuition, books and academic
fees that are required for enrollment or attendance at an eligible
educational institution. Qualified tuition and related expenses do not
include student activity fees, athletic fees, insurance expenses, room
and board, transportation costs and other personal living expenses. They
also don't include the cost of any course or education involving sports,
games, or hobbies unless the course or education is part of the
student's degree program. The amount of qualified tuition and
related expenses taken into account in computing the HOPE/Lifetime
Learning credits must be reduced by tax-exempt scholarships and
fellowships, certain military benefits, and any other tax-exempt
payments of those expenses other than gifts or bequests. Both the HOPE credit and the
Lifetime Learning credit are phased out ratably for married taxpayers
filing jointly with adjusted gross income (AGI), with certain
modifications, between $80,000 and $100,000. That is, the credit is
reduced if the modified AGI is above $80,000 and is unavailable if it's
$100,000 or more. For taxpayers who aren't married filing jointly, the
phase-out range is $40,000 to $50,000. After 2001, the phase-out amounts
will be adjusted for inflation. Neither the HOPE credit nor the
Lifetime Learning credit is available for taxpayers who are married
filing separately. In addition, neither the HOPE credit nor the Lifetime Learning credit is allowed to an individual who is claimed as a dependent on another's return. In this situation, the HOPE/Lifetime Learning credits are allowed instead to the taxpayer claiming that individual as a dependent, and the credits are based on the total qualified tuition and related expenses paid both by the taxpayer and the student. But if no one claims the student as a dependent on a tax return for the year, the HOPE/Lifetime Learning credits are allowed to the student on his or her own return, based on the expenses paid by the student. In either case, the student's credit takes into account the expenses that a third party (e.g., the student's grandparent) pays to the eligible educational institutional directly. |
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