Table of Contents
Income limits increased. Beginning in 2008, the amount of your Hope or lifetime learning credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim a credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return). This is an increase from the 2007 limits of $47,000 and $57,000 ($94,000 and $114,000 if filing a joint return). For more information, see Effect of the Amount of Your Income on the Amount of Your Credit , later.
Maximum amount of Hope credit increased. Beginning in 2008, the maximum amount of the Hope credit has increased to $1,800. This is an increase from the 2007 maximum amount of $1,650.The amount of the Hope credit (per eligible student) is the sum of 100% of the first $1,200 of qualified education expenses you paid for the eligible student and 50% of the next $1,200 of qualified education expenses you paid for that student. For more information, see Figuring the Credit under Information for Only the Hope Credit .
Students in Midwestern disaster areas. The following changes apply only to students attending an eligible educational institution in a Midwestern disaster area in the states of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin.
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Hope credit increased. The Hope credit for a student in a Midwestern disaster area 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 $4,800 per student. For more information, see Figuring the Credit under Information for Only the Hope Credit .
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Lifetime learning credit increased. The lifetime learning credit rate for a student in a Midwestern disaster area is 40%. For more information, see Figuring the Credit under Information for Only the Lifetime Learning Credit .
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Definition of qualified expenses expanded. The definition of qualified education expenses for the education credits is expanded for students in a Midwestern disaster area. For more information, see Students in Midwestern disaster areas under Qualified Education Expenses .
This chapter discusses two tax credits (referred to here as education credits) available to persons who pay expenses for higher education. They are:
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The Hope credit, and
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The lifetime learning credit.
The chapter will do the following.
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Give you general information that applies to both of the credits.
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Give you specific information about each of the credits.
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Help you choose which of the credits to claim.
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Show you how to figure the credit you choose.
Hope Credit | Lifetime Learning Credit |
Up to $1,800 credit ($3,600 if a student in a Midwestern disaster area) per eligible student | Up to $2,000 credit ($4,000 if a student in a Midwestern disaster area) per return |
Available ONLY until the first 2 years of postsecondary education are completed | Available for all years of postsecondary education and for courses to acquire or improve job skills |
Available ONLY for 2 years per eligible student | Available for an unlimited number of years |
Student must be pursuing an undergraduate degree or other recognized educational credential | Student does not need to be pursuing a degree or other recognized education credential |
Student must be enrolled at least half time for at least one academic period beginning during the year | Available for one or more courses |
No felony drug conviction on student's record | Felony drug conviction rule does not apply |
Publication
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970 Tax Benefits for Education
Form (and Instructions)
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8863 Education Credits (Hope and Lifetime Learning Credits)
Several rules are common to both education credits. These are discussed below.
The following rules will help you determine if you are eligible to claim an education credit on your tax return.
Generally, you can claim an education credit if all three of the following requirements are met.
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You pay qualified education expenses of higher education.
Note. Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. -
You pay the education expenses for an eligible student.
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The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
“Qualified education expenses” are defined later under What Expenses Qualify . A “dependent for whom you claim an exemption” is defined later under Who Can Claim a Dependent's Expenses . “Eligible students” are defined differently for each credit. See Who Is an Eligible Student under the specific information for either the Hope or lifetime learning credit.
You may find Figure 35-A, at the end of the chapter, helpful in determining if you can claim an education credit on your tax return.
You cannot claim an education credit for 2008 if any of the following apply.
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Your filing status is married filing separately.
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You are listed as a dependent in the Exemptions section on another person's tax return (such as your parents'). See Who Can Claim a Dependent's Expenses , later.
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Your MAGI is $58,000 or more ($116,000 or more in the case of a joint return). MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit .
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You (or your spouse) were a nonresident alien for any part of 2008 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.
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You claim a tuition and fees deduction for the same student in 2008.
The education credits are based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, a credit is allowed for qualified education expenses paid in 2008 for an academic period beginning in 2008 or in the first 3 months of 2009.
For example, if you paid $1,500 in December 2008 for qualified tuition for the Spring 2009 semester beginning in January 2009, you may be able to use that $1,500 in figuring your 2008 credit.
For purposes of an education credit, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution.
In the following examples, assume that each student is an eligible student at an eligible educational institution.
Example 1.
Jackson is a sophomore in University V's degree program in dentistry. This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense.
Example 2.
Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Donna bought hers at College W's bookstore. Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution.
Example 3.
When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and the student government. No portion of the fee covers personal expenses. Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Therefore, it is a qualified expense.
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Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution
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For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution.
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For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the following two amounts.
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The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
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The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
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You cannot do any of the following.
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Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses.
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Claim an education credit in the same year you are claiming a tuition and fees deduction for the same student.
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Claim a Hope credit and a lifetime learning credit based on the same qualified education expenses.
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Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP).
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Claim a credit based on qualified education expenses paid with a tax-free scholarship, grant, or employer-provided educational assistance. See Adjustments to Qualified Education Expenses, next.
If you pay qualified education expenses with certain tax-free funds, you cannot claim a credit for those amounts. You must reduce the qualified education expenses by the amount of any tax-free educational assistance and refund(s) you received.
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Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Publication 970),
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Pell grants (see chapter 1 of Publication 970),
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Employer-provided educational assistance (see chapter 11 of Publication 970),
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Veterans' educational assistance (see chapter 1 of Publication 970), and
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Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.
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Payment for services, such as wages,
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A loan,
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A gift,
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An inheritance, or
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A withdrawal from the student's personal savings.
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The use of the money is restricted to costs of attendance (such as room and board) other than qualified education expenses.
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The use of the money is not restricted and is used to pay education expenses that are not qualified (such as room and board).
Example 1.
Jackie paid $3,000 for tuition and $5,000 for room and board at University X. The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan.
The terms of the scholarship state that it may be used to pay any of Jackie's college expenses. Because she applied it toward her tuition, the scholarship is tax free. Therefore, for purposes of figuring an education credit (either Hope or lifetime learning), she must first use the $2,000 scholarship to reduce her tuition (her only qualified education expense). The student loan is not tax-free educational assistance, so she does not use it to reduce her qualified expenses. Jackie is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship).
Example 2.
The facts are the same as in Example 1, except that Jackie uses the $2,000 scholarship to pay room and board, and, therefore, reports her entire scholarship as income on her tax return. In this case, the scholarship is allocated to expenses other than qualified education expenses. Jackie is treated as paying the entire $3,000 tuition with other funds and can figure her education credit on the entire $3,000.
Qualified education expenses do not include amounts paid for:
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Insurance,
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Medical expenses (including student health fees),
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Room and board (but see Students in Midwestern disaster areas under Qualified Education Expenses , earlier, for an exception),
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Transportation, or
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Similar personal, living, or family expenses.
This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.
If there are qualified education expenses for your dependent for a year, either you or your dependent, but not both of you, can claim an education credit for your dependent's expenses for that year.
For you to claim an education credit for your dependent's expenses, you must also claim an exemption for your dependent. You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c.
IF you... | THEN only... |
claim an exemption on your tax return for a dependent who is an eligible student | you can claim an education credit based on that dependent's expenses. The dependent cannot claim a credit. |
do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) | the dependent can claim an education credit. You cannot claim a credit based on this dependent's expenses. |
Example.
In 2008, Ms. Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. For purposes of claiming an education credit, Todd is treated as receiving the money as a gift from his grandmother and, in turn, paying his qualified education expenses himself.
Unless an exemption for Todd is claimed on someone else's 2008 tax return, only Todd can use the payment to claim an education credit.
If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2008 tax return, whoever claims the exemption may be able to use the expenses to claim an education credit. If anyone else claims an exemption for Todd, Todd cannot claim an education credit.
The amount of your education credit is phased out (gradually reduced) if your MAGI 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 MAGI is $58,000 or more ($116,000 or more if you file a joint return).
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Foreign earned income exclusion,
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Foreign housing exclusion,
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Foreign housing deduction,
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Exclusion of income for bona fide residents of American Samoa, and
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Exclusion of income for bona fide residents of Puerto Rico.
If, after you file your 2008 tax return, you or someone else receives tax-free educational assistance for, or a refund of, an expense you used to figure an education credit on that return, you may have to repay all or part of the credit. You must refigure your education credit(s) for 2008 as if the assistance or refund was received in 2008. Subtract the amount of the refigured credit from the amount of the credit you claimed. The result is the amount you must repay. You add the repayment (recapture) to your tax liability for the year in which you receive the assistance or refund. See the instructions for your tax return for that year to find out how to report the recapture amount. Your original 2008 tax return does not change.
For the tax year, you may be able to claim a Hope credit of up to $1,800 ($3,600 if a student in a Midwestern disaster area) for qualified education expenses paid for each eligible student.
To claim the Hope credit, the student for whom you pay qualified education expenses must be an eligible student. This is a student who meets all of the following requirements.
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The student did not have expenses that were used to figure a Hope credit in any 2 earlier tax years.
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The student had not completed the first 2 years of postsecondary education (generally, the freshman and sophomore years of college) before 2008.
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For at least one academic period beginning in 2008, the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.
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The student was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of 2008.
Example 1.
Marty graduated from high school in June 2007. In September, he enrolled in an undergraduate degree program at College U, and attended full time for both the 2007 Fall and 2008 Spring semesters. For the 2008 Fall semester, Marty was enrolled less than half-time. Because Marty was enrolled in an undergraduate degree program on at least a half-time basis for at least one academic period that began during 2007 and at least one academic period that began during 2008, he is an eligible student for tax years 2007 and 2008 (including the 2008 Fall semester when he enrolled at College U on less than a half-time basis).
Example 2.
After taking classes at College V on a half-time basis for the 2007 Spring and Fall semesters, Sharon became a full-time student for the 2008 Spring semester. College V classified Sharon as a second-semester sophomore for the 2008 Spring semester and as a first-semester junior for the 2008 Fall semester. Because College V did not classify Sharon as having completed the first two years of postsecondary education as of the beginning of 2008, Sharon is an eligible student for tax year 2008. Therefore, the qualified education expenses paid for the 2008 Spring semester and the 2008 Fall semester are taken into account in calculating any Hope credit for 2008.
Example 3.
During the 2007 Fall semester, Luis was a high school student who took classes on a half-time basis at College X. Luis was not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have a high school diploma or equivalent. Because Luis was not enrolled in a degree program at College X during 2007, Luis was not an eligible student for tax year 2007.
Example 4.
The facts are the same as in Example 3. During the 2008 Spring semester, Luis again attended College X but not as part of a degree program. Luis graduated from high school in June 2008. For the 2008 Fall semester, Luis enrolled as a full-time student in College X as part of a degree program, and College X awarded Luis credit for his prior coursework at College X. Because Luis was enrolled in a degree program at College X for the 2008 Fall term on at least a half-time basis, Luis is an eligible student for all of tax year 2008. Therefore, the qualified education expenses paid for classes taken at College X during both the 2008 Spring semester (during which Luis was not enrolled in a degree program) and the 2008 Fall semester are taken into account in computing any Hope credit.
Example 5.
Diana graduated from high school in June 2006. In January 2007, Diana enrolled in a one-year postsecondary certificate program on a full-time basis to obtain a certificate as a travel agent. Diana completed the program in December 2007, and was awarded a certificate. In January 2008, she enrolled in a one-year postsecondary certificate program on a full-time basis to obtain a certificate as a computer programmer. Diana is an eligible student for both tax years 2007 and 2008 because she meets the degree requirement, the work load requirement, and the year of study requirement for those years.
The amount of the Hope credit (per eligible student) is the sum of:
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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
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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.
The maximum amount of Hope credit you can claim in 2008 is $1,800 ($3,600 if a student in a Midwestern disaster area) times the number of eligible students. You can claim the full $1,800 ($3,600 if a student in a Midwestern disaster area) for each eligible student for whom you paid at least $2,400 ($4,800 if a student in a Midwestern disaster area) of qualified education expenses. However, the credit may be reduced based on your MAGI. See Effect of the Amount of Your Income on the Amount of Your Credit , earlier.
Example.
Jon and Karen Frost are married and file a joint tax return. For 2008, they claim an exemption for their dependent daughter on their tax return. Their MAGI is $70,000. Their daughter is in her sophomore (second) year of studies at the local university. Jon and Karen paid qualified education expenses of $4,300 in 2008.
Jon and Karen, their daughter, and the local university meet all of the requirements for the Hope credit. Jon and Karen can claim a $1,800 Hope credit in 2008. This is 100% of the first $1,200 of qualified education expenses, plus 50% of the next $1,200.
For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in a Midwestern disaster area) for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student.
For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier.
The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. The maximum amount of lifetime learning credit you can claim for 2008 is $2,000 (20% × $10,000). However, that amount may be reduced based on your MAGI. See Effect of the Amount of Your Income on the Amount of Your Credit , earlier.
Example.
Bruce and Toni are married and file a joint tax return. For 2008, their MAGI is $75,000. Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. She already has a bachelor's degree in history and wants to become a nurse. In August 2008, Toni paid $6,000 of qualified education expenses for her Fall 2008 semester. Bruce and Toni can claim a $1,200 (20% × $6,000) lifetime learning credit on their 2008 joint tax return.
You claim the lifetime learning credit by completing Parts II and III of Form 8863 and submitting it with your Form 1040 or 1040A. Enter the credit on Form 1040, line 50, or Form 1040A, line 31.
Figure 35-A. Can You Claim an Education Credit for 2008?
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