2008 Changes

Beginning in 2008, the following changes apply to the Hope and lifetime learning (education) credits. For more information, see chapters 2 and 3 in Publication 970.

Income limits for credit reduction increased. For 2008, the amount of your Hope or lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (AGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim an education credit if your modified AGI is $58,000 or more ($116,000 or more if you file a joint return).

Hope credit. Beginning in 2008, the maximum amount of Hope credit you can claim is $1,800 ($3,600 if a student in a Midwestern disaster area) per student. The amount of the credit for each 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.

Students in Midwestern disaster areas. The following rules apply only to students attending an eligible educational institution in the Midwestern disaster areas in the states of Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin. See Table 3-2 near the end of chapter 3 in Publication 970, Tax Benefits for Education, for a list of counties.

• Hope credit increased. The Hope credit for students in Midwestern disaster areas is 100% of the first $2,400 of qualified education expenses and 50% of the next $2,400 of qualified education expenses for a maximum credit of $3,600 per student. See chapter 2 of Publication 970 for more information.
• Lifetime learning credit increased. The lifetime learning credit rate for students in Midwestern disaster areas is 40% of qualified expenses paid, with a maximum credit of $4,000 allowed on your return.  See chapter 3 of Publication 970 for more information.
• Definition of qualified expenses expanded. The definition of qualified education expenses for the education credits is expanded for students in Midwestern disaster areas. See chapters 2 and 3 of Publication 970 for more information.
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2009 and 2010 Changes

For tax years 2009 and 2010, the following changes have been made to the Hope Credit.

• The maximum amount of the Hope Credit increases to $2,500 per student. The credit is phased out (gradually reduced) if your modified adjusted gross income (AGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). Exception. For 2009, if you claim a Hope Credit for a student who attended a school in a Midwestern disaster area, you can choose to figure the amount of the credit using the previous rules.
• The Hope Credit can now be claimed for the first four years of post-secondary education. Previously the credit could be claimed for only the first two years of post-secondary education.
• Forty percent (.40) of the Hope Credit is now a refundable credit, which means that you can receive up to $1,000 even if you owe no taxes.
• The term "qualified tuition and related expenses" has been expanded to include expenditures for "course materials." For this purpose, the term "course materials" means books, supplies, and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance

For 2009, the amount of your Lifetime Learning Credit is phased out (gradually reduced) if your modified adjusted gross income (AGI) is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return). You cannot claim the Lifetime Learning Credit if your modified AGI is $60,000 or more ($120,000 or more if you file a joint return).