Table of Contents
The following appendices include an illustrated example of how to use the Form 8863 when claiming both the Hope and lifetime learning (education) credits at the same time and a chart reflecting some of the major differences between the many tax benefits for education that are outlined in this publication.
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Appendix A—An Illustrated Example of Education Credits including a filled-in Form 8863 showing how to claim both the Hope credit and lifetime learning credit for 2007.
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Appendix B—A chart summarizing some of the 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.
Dave and Valerie Jones are married and file a joint tax return. For 2007, they claim exemptions for their two dependent children on their tax return. Their modified adjusted gross income is $97,000. Their tax, before credits, is $11,029. Their son, Sean, will receive his bachelor's degree in psychology from the state college in May 2008. Their daughter, Corey, enrolled full-time at that same college in August 2006 to begin working on her bachelor's degree in physical education. In July 2007, Dave and Valerie paid $2,200 in tuition costs for each child for the Fall 2007 semester. In December 2007, they also paid $2,600 of tuition for each child for the Spring 2008 semester that begins in January.
Dave and Valerie, their children, and the college meet all of the require-ments for the education credits. Because Sean is beyond the second (sophomore) year of his postsec- ondary education, his expenses do not qualify for the Hope credit. But, amounts paid for Sean's expenses in 2008 for academic periods beginning in 2007 and the first 3 months of 2008 qualify for the lifetime learning credit. Corey is in her first 2 (freshman and sophomore) years of postsecondary education and expenses paid for her in 2007, for academic periods beginning in 2007 and January 2008, qualify for the Hope credit.
Dave and Valerie figure their tentative education credits for 2007, $2,610, as shown in the completed Form 8863.
They cannot claim the full amount because their
modified adjusted gross income is more than $94,000. They carry the amount from line 17 of Form 8863, $2,219 to line 49 of
Form 1040, and they attach
the Form 8863 to their return.
Form 8863 for Dave and Valerie Jones
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 |
Hope Credit | Lifetime Learning Credit | Student Loan Interest Deduction | Tuition and Fees Deduction | |
What is your
benefit? |
Amounts received may not be taxable
|
Credits can reduce amount of tax you must pay | Can deduct interest paid | Can deduct expenses | |
What is the annual limit? | None |
$1,650 credit per
student |
$2,000 credit per
family |
$2,500 deduction | $4,000 deduction |
What expenses
qualify besides tuition and required enrollment fees? |
Course-related expenses such as fees, books, supplies, and equipment | None | None |
Books
Supplies Equipment Room & board Transportation Other necessary expenses |
None |
What education qualifies? |
Undergrad. & graduate
K-12 |
1st 2 years of undergraduate (postsecondary) |
Undergrad. & graduate
Courses to acquire or improve job skills |
Undergrad. & graduate | Undergrad. & graduate |
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 2 tax years
Must be enrolled at least half-time in degree program No felony drug conviction(s) |
Must have been at least half-time
student in degree program |
Cannot claim both deduction & education credit for same student in
same year |
|
In what income
range do benefits phase out? |
No phaseout |
$47,000 - $57,000
$94,000 - $114,000 for joint returns |
$55,000 - $70,000
$110,000 - $140,000 for joint returns |
$65,000 - $80,000
$130,000 - $160,000 for joint returns |
(Continued) |
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.
Coverdell ESA * | Qualified Tuition Program (QTP) * | Educational Exception to Additional Tax on Early IRA Distributions * | Education Savings Bond Program * |
Employer-
Provided Educational Assistance * |
Business Deduction for Work-Related Education | |
What is your benefit? |
Earnings not
taxed |
Earnings not taxed |
No 10%
additional tax on early distribution |
Interest not taxed | Employer benefits not taxed | Can deduct expenses |
What is the annual limit? | $2,000 contribution per beneficiary | None |
Amount of qualified
education expenses |
Amount of qualified
education expenses |
$5,250 exclusion | Amount of qualifying work-related education expenses |
What expenses qualify besides tuition and required enrollment fees? |
Books
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 |
What education qualifies? |
Undergrad. & graduate
K-12 |
Undergrad. & graduate | Undergrad. & graduate | Undergrad. & graduate | Undergrad. & graduate |
Required by employer or law to keep present job, salary, status
Maintain or improve job skills |
What are some of the other conditions that apply? |
Assets must be distributed at age 30 unless special
needs beneficiary |
Applies only to qualified series
EE bonds issued after 1989 or series I bonds |
Cannot be to
meet minimum educational requirements of present trade/business Cannot qualify you for new trade/business |
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In what income range do benefits phase out? |
$95,000 - $110,000
$190,000 - $220,000 for joint returns |
No phaseout | No phaseout |
$65,600 - $80,600
$98,400 - $128,400 for joint returns |
No phaseout | May be subject to limit on itemized deductions |
* Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. |
The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable.
For each term listed below that has more than one definition, the definition for each education benefit is listed.
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Attends a primary or secondary school or pursues a degree at a college or university, or
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Attends an accredited educational institution that is authorized to provide:
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A program that is acceptable for full credit toward a bachelor's or higher degree, or
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A program of training to prepare students for gainful employment in a recognized occupation.
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• | Coverdell education savings account (ESA). 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. Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. | ||
• | Education savings bond program. 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. | ||
• | Hope credit. See Education savings bond program in this category. | ||
• | IRA, early distributions from. See Education savings bond program in this category. | ||
• | Lifetime learning credit. See Education savings bond program in this category. | ||
• | Qualified tuition program (QTP). See Education savings bond program in this category. | ||
• | Scholarships and fellowships. An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. | ||
• | Student loan, cancellation of. See Scholarships and fellowships in this category. |
• | Student loan interest deduction. 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. Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. | ||
• | Tuition and fees deduction. See Education savings bond program in this category. |
• | Hope credit. A student who meets all of the following requirements for the tax year for which the credit is being determined. | ||
1. | Did not have expenses that were used to figure a Hope credit in any 2 earlier tax years. | ||
2. | Had not completed the first 2 years of postsecondary education. | ||
3. | For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. | ||
4. | Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. | ||
• | Lifetime learning credit. A student who is enrolled in one or more courses at an eligible educational institution. | ||
• | Student loan interest deduction. A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential. |
• | Tuition and fees deduction. A student who has either a high school diploma or a General Educational Development (GED) credential, and who is enrolled in one or more courses at an eligible educational institution. |
• | Coverdell education savings account (ESA). Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: | ||
1. | Foreign earned income exclusion, | ||
2. | Foreign housing exclusion, | ||
3. | Exclusion of income for bona fide residents of American Samoa, and | ||
4. | Exclusion of income for bona fide residents of Puerto Rico. | ||
• | Education savings bond program. Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and 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, | ||
5. | Exclusion of income for bona fide residents of Puerto Rico, | ||
6. | Exclusion for adoption benefits received under an employer's adoption assistance program, | ||
7. | Deduction for student loan interest, | ||
8. | Deduction for tuition and fees, and | ||
9. | Deduction for domestic production activities. | ||
• | Hope credit. See Coverdell education savings account (ESA) in this section. | ||
• | Lifetime learning credit. See Coverdell education savings account (ESA) in this section. |
• | Student loan interest deduction. Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and 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. | ||
• | Tuition and fees deduction. Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction or domestic production activities deduction, and 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. |
• | Coverdell education savings account (ESA). Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. Also includes contribution to qualified tuition program (QTP). | ||
• | Education savings bond program. Tuition and fees required to enroll at or attend an eligible educational institution. Also includes contributions to a qualified tuition program (QTP) or |
Coverdell education savings account (ESA). Does not include expenses for room and board. Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. | |||
• | Hope credit. Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Does not include expenses for room and board. Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. | ||
• | IRA, early distributions from. Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half time. Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. | ||
• | Lifetime learning credit. Same as for Hope credit, except that courses may be taken either as part of a postsecondary degree program or taken by the student to acquire or improve job skills. | ||
• | Qualified tuition program (QTP). Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half time. | ||
• | Scholarships and fellowships. Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Course- related items must be required of all students in the course of instruction. | ||
• | Student loan interest deduction. Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). | ||
• | Tuition and fees deduction. See Hope credit in this category. |
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