National Association of Student
Financial Aid Administrators
Understanding the Hope Scholarship Tax
Credit
What's New for 2007
Income limits increased. The amount of a Hope Scholarship Tax Credit for 2007 is gradually reduced (phased out) for those with modified adjusted gross incomes (MAGI) between $47,000 and $57,000 ($94,000 and $114,000 for joint returns). Those with a MAGI of $57,000 or more ($114,000 for joint returns) cannot claim a Hope credit. This is an increase from the 2006 limits of $45,000 and $55,000 ($90,000 and $110,000 for joint returns).
What Is It?
The Hope Scholarship is a tax credit, not a
scholarship. Tax credits are subtracted directly from the tax a family owes, instead
of being subtracted from taxable income like a tax deduction. A family must
file a federal tax return and owe taxes to get this tax credit. A family cannot get a
refund for the Hope credit if it does not pay taxes. A family that owes less tax than the maximum amount of the Hope tax credit for which it is eligible can only take a credit up to the amount of taxes owed.
For the 2007 tax year, a family may claim a tax credit up to $1,650 for each eligible dependent for up to two tax years (100% of the first $1,100 and 50% of the second $1,100 paid for qualified expenses). The Hope credit is available only until each student's first two years of postsecondary education are
complete. Gulf Opportunity Zone students may claim up to $3,300 (100% of the first $2,200 and 50% of the second $2,200) for the 2007 tax year.
The exact amount of the Hope credit also depends on a family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. The total
credit is also based on how many eligible dependents are in the family, rather
than a maximum dollar amount for the family as with the Lifetime Learning tax
credit.
Who Qualifies?
The Taxpayer: An eligible taxpayer must file a federal tax return
and owe taxes to claim the Hope credit. In addition, the taxpayer must claim an
eligible student as a dependent on the tax return, unless the credit is for the
taxpayer or the taxpayer's spouse. (This means the eligible taxpayer may also be
the eligible student.) In 2007, taxpayers cannot claim a Hope credit if their Modified Adjusted
Gross Income (MAGI) is $57,000 or more for a single taxpayer, or $114,000 or
more for married taxpayers filing a joint return. The Hope credit amount is reduced gradually for families with incomes between $47,000 and $57,000 if single, or $94,000 and $114,000 if
married and filing jointly. MAGI limits were increased by $2,000 for single taxpayers by $3,000 for married taxpayers filing jointly in the 2007 tax year.
The Student: An eligible student must be enrolled at least half-time for at least one academic period beginning in 2007 at an eligible program leading to a degree or certificate at an eligible school AND can not have completed the first two years of undergraduate study. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.) Students convicted of a federal or state drug felony before the end of 2007 are not eligible for the Hope credit.
How Do You Get
It?
To apply for the credit, taxpayers must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. Schools are required to send this information by Jan. 31, 2008 in the form of a 1098-T statement to each taxpayer and to the IRS. Taxpayers use this information and their own records about tuition and fees paid when they fill out IRS form 8863 to claim the tax credit. The statement sent by the school will also include contact information for someone at the school who can answer questions about the information on the form. A taxpayer may wish to talk to a tax advisor for help in calculating the amount of the credit.
When Is It
Available?
Generally, the credit is allowed for qualified education expenses paid in 2007 for an academic period that begins in 2007 or during the first three months of 2008 (e.g., paying in December 2007 for an academic period beginning in the first three months of 2008).
Can A Family Claim Multiple
Benefits?
A family may claim a Lifetime Learning credit, a Hope credit, and an exclusion from gross income for certain distributions from qualified state tuition programs or education IRAs as long as the same student isn't used as the basis for each credit or exclusion AND the family doesn't exceed the Lifetime Learning maximum per family.
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National Association of Student
Financial Aid Administrators
Understanding the Lifetime Learning Tax
Credit
What's New for 2007
Income limits increased. The amount of a Lifetime Learning Tax Credit for 2007 is gradually reduced (phased out) for those with modified adjusted gross incomes (MAGI) between $47,000 and $57,000 ($94,000 and $114,000 for joint returns). Those with a MAGI of $57,000 or more ($114,000 for joint returns) cannot claim a Hope credit. This is an increase from the 2006 limits of $45,000 and $55,000 ($90,000 and $110,000 for joint returns).
What Is It?
The Lifetime Learning Credit is a tax credit available to individuals who file a tax
return and owe taxes. The amount of the credit is subtracted from the taxes
owed, rather than reducing taxable income as with a tax deduction. Individuals
who do not pay taxes are not eligible for a Lifetime Learning credit. Taxpayers
who owe less tax than the maximum amount of the Lifetime Learning tax credit
for which they are eligible can only take a credit up to the amount of taxes owed.
A family may claim a tax credit of up to $2,000 per tax year for the taxpayer,
taxpayer's spouse, or any eligible dependents for an unlimited number of tax
years ($4,000 for Gulf Opportunity Zone students). If you are claiming a lifetime
learning credit for both Gulf Opportunity Zone students and other students, the
qualified education expenses taken into account in Part II of the 8863 form
cannot exceed $10,000 reduced by the qualified education expenses of the Gulf
Opportunity Zone students. The amount of the Lifetime Learning tax credit is
20% of the first $10,000 of qualified educational expenses paid for all eligible
students. Therefore, the maximum amount of a Lifetime Learning tax credit is
$2,000. The Lifetime Learning credit is available for all years of postsecondary
education and for courses to acquire or improve job skills, unlike the Hope credit
which is only available for two years.
The actual amount of the credit depends on a family's income, the amount of
qualified tuition and fees paid, and the amount of certain scholarships and
allowances subtracted from tuition. This credit is family-based (up to $2,000 per
tax return or $4,000 for Gulf Opportunity Zone students) rather than based on the
number of dependents in a family as with the Hope credit.
Who Qualifies?
The Taxpayer: An eligible taxpayer must file a tax return and owe taxes to claim
the credit. The taxpayer must also claim the eligible student as a dependent
unless the credit is for the taxpayer or the taxpayer's spouse. (This means the
eligible taxpayer may also be the eligible student.) In 2007, those with a Modified Adjusted Gross Income (MAGI) of $57,000 or more (if single), or $114,000 or more (for married taxpayers filing a joint return) cannot claim a Lifetime Learning Credit. MAGI limits were increased by $2,000 for single taxpayers and married
taxpayers for the 2007 tax year. The Lifetime Learning Tax Credit amount is reduced gradually for families with incomes between $47,000 and $57,000 if single, or $94,000 and $114,000 if
married and filing jointly. Taxpayers that claim the Hope credit or tuition and fees deduction for a student are not eligible to claim the Lifetime Learning
credit for the same student.
The Student: An eligible student may be enrolled in an eligible program leading
to an undergraduate or graduate degree at an eligible school during the calendar
year OR may be enrolled in any course of instruction at an eligible school to
acquire/improve the student's job skills during the calendar year. Students may
claim the credit themselves if they are not claimed as a dependent by another
taxpayer. (Once again, this means that the eligible student may also be the
eligible taxpayer.)
How Do You Get
It?
To apply for the credit, the taxpayer must report the amount of tuition and fees paid as well as the amount of certain scholarships, grants, and untaxed income used to pay the tuition and fees. The law specifies that schools will send this information by January 31, 2008, in the form of a 1098-T statement to individual taxpayers and to the IRS. Taxpayers will use this information and their own records about tuition and fees paid when they fill out the IRS Form 8863 to claim the tax credit. The statement sent by the school will also include contact information for someone at the school who can answer questions about the information on the form. A taxpayer may wish to talk to a tax advisor for help in calculating the amount of its credit.
When Is It
Available?
Generally, the deduction is allowed for qualified tuition and expenses paid in 2007 in connection with enrollment at an institution of higher education during 2007 or for an academic period beginning in 2007 or in the first three months of 2008. For instance, if you paid $1,500 in December 2007 for qualified tuition for a spring 2007 semester that begins in January 2008, that $1,500 can be used to figure the 2007 deduction.
Can A Family Claim Multiple
Benefits?
A family may claim a Lifetime Learning credit, a Hope credit, and an exclusion
from gross income for certain distributions from qualified state tuition programs or
education IRAs as long as the same student isn't used as the basis for each
credit or exclusion AND the family doesn't exceed the Lifetime Learning
maximum per family.
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National Association of Student
Financial Aid Administrators
Understanding the Tuition and Fees Tax
Deduction
What Is It?
The Tuition and Fees Tax Deduction can
reduce taxable income by as much as $4,000 in 2007. This
deduction is taken as an adjustment to income, which means you can claim this
deduction even if they do not itemize deductions on Schedule A of Form 1040.
This deduction may benefit taxpayers who do not qualify for either the Hope or
Lifetime Learning Education Tax Credits.
Up to $4,000 may be deducted from tuition and fees required for enrollment or attendance at an eligible postsecondary institution. Personal living and family expenses, including room and board, insurance, medical and transportation, are not deductible expenses.
The exact amount of the Tuition and Fees Tax Deduction depends on the amount of qualified tuition and related expenses paid for one's self, spouse, or dependent for whom the taxpayer can claim an exemption.
Who Qualifies?
The Taxpayer: An eligible taxpayer must file a federal tax return to claim the Tuition and Fees Tax Deduction. The taxpayer must also claim an eligible student (an individual enrolled in one or more courses at an eligible educational institution) as a dependent on the tax return. The deduction may also be for the taxpayer or the taxpayer's spouse. The amount of qualified education expenses that can be deducted through the Tuition and Fees Deduction remained level for the 2007 tax year at $4,000 for taxpayers with a Modified Adjusted Gross Income (MAGI) of $65,000 or less ($130,000 or less for married couples filing jointly). The maximum Tuition and Fees Deduction is $2,000 for taxpayers with a MAGI greater than $65,000 ($130,000 for married couples filing jointly), but not greater than $80,000 ($160,000 for married couples filing jointly). Taxpayers with a MAGI greater than $80,000 ($160,000 for married couples filing jointly) are not eligible for this deduction.
The Student: An eligible student must be enrolled in one or more
courses at an eligible educational institution. An eligible educational
institution is any college, university, vocational school, or other
postsecondary educational institution eligible to participate in a student aid
program administered by the U.S. Department of Education. According to the IRS, "it
includes virtually all accredited, public, nonprofit, and proprietary
postsecondary institutions." Colleges can provide information on whether they meet this requirement. Students may claim this deduction for themselves if they are not claimed as a dependent by another taxpayer.
How Do You Get
It?
An eligible institution that received payment for tuition and fees in
the 2007 tax year generally must issue IRS Form 1098-T (the Tuition
Statement) to each student by January 31, 2008. The information on
that form will help taxpayers determine whether they can claim a deduction for
2007. An institution may choose to report payments received (box 1), or amounts billed (box2) for qualified education expenses. However, the amount in boxes 1 and 2 may be different than what you actually paid. Only use the amounts you paid in 2007 for qualified education expenses.
When Is It
Available?
Generally, the deduction is allowed for
qualified tuition and expenses paid in 2007 in connection with enrollment at an
institution of higher education during 2007 or for an academic period beginning
in 2007 or in the first three months of 2008. For instance, if you paid $1,500
in December 2007 for qualified tuition for a spring 2007 semester that begins
in January 2008, that $1,500 can be used to figure the 2007 deduction.
Can A Family Claim Multiple
Benefits?
Taxpayers may claim this deduction along with a Hope credit, a Lifetime Learning credit, and an exclusion from gross income for certain distributions from qualified state tuition programs or education IRAs, if a different student is used for each deduction, credit, or exclusion AND the family does not exceed the Lifetime Learning maximum per family.
Taxpayers cannot take the Tuition and Fees Tax
Deduction if they deduct tuition and fees expenses under any other provision of
the law (for example, as a business expense).
This deduction cannot be claimed if the tuition and fees were paid with tax-free scholarships, grants (including Federal Pell Grants), or other educational assistance including employer-provided education assistance and other non-taxable benefits received to pay for education expenses.
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