Tax Credits For American Opportunity / Hope and Lifetime Learning

"Tax Credits For American Opportunity / Hope and Lifetime Learning" submitted by SchoolGrantsfor Editorial Team and last updated on Monday 8th August 2011

Table of Contents

A tax credit equal to all of the first $1,100 of tuition and fees (less scholarships, grants, and tax-free tuition benefits) and half of the next $1,100 of tuition and fees, is available to parents of dependent students or to students who are not claimed as dependents on their parents’ tax return. Beginning in 2006, the maximum amount of the Hope credit is $1,650 per student ($3,300 for a Gulf Opportunity (GO) Zone student). The Hope credit can be claimed only for two tax years and applies only to the first two years of post-secondary education. Students must be enrolled at least half-time in a program that leads to a degree, certificate, or other educational credential during at least one academic period that begins during the tax year. Students cannot have had a drug felony conviction in a year in which the credit applies.

Lifetime Learning Credit applies to tuition and fees for undergraduate, graduate, and continuing education coursework to acquire or improve job skills. Parents of dependent students or students who are not claimed as dependents on their parents’ tax returns may claim a credit equal to 20% of up to $10,000 of educational expenses; the maximum benefit is $2,000 each tax year ($4,000 for GO Zone students). Eligible education expenses are offset by scholarships, grants, and other tax-free tuition benefits.

How do you get the tax credit?

To apply for the American Opportunity/Hope credit or the Lifetime Learning 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 tuition and fees. By law, schools must send this information in the form of a 1098-T Tuition Statement to each taxpayer and to the IRS. For tax year 2009, colleges and universities are expected to fill out all sections of IRS Form 1098-T before sending them to students. (Your school should have mailed this to you by February 1, 2010.)

The 1098-T statement includes the phone number of a person you can call at the school if you have questions. You will use this information and your own records about tuition and fee amounts you paid to fill out the supplementary IRS Form 8863 to claim the American Opportunity/Hope credit or the Lifetime Learning credit. You may wish to talk to a tax advisor for help in calculating the amount of your credit.

When is it available?

Generally, the American Opportunity/Hope credit or the Lifetime Learning credit is allowed for qualified tuition and expenses paid in 2009 in connection with enrollment at an institution of higher education during 2009 or for an academic period beginning in 2009 or in the first three months of 2010. For instance, if you paid $1,500 in December 2009 for qualified tuition for a spring 2010 semester that begins in January 2010, you can use that $1,500 in calculating your 2009 credit.

Can a family claim multiple benefits?

You cannot claim both the American Opportunity/Hope credit and the Lifetime Learning credit for the same student. If there are multiple students in your family, your family can claim an American Opportunity/Hope credit, a Lifetime Learning credit and an exclusion from gross income for certain distributions from qualified state tuition programs or education Investment Retirement Accounts (IRAs) as long as the same student is not used as the basis for each credit or exclusion AND the family does not exceed the maximum Lifetime Learning credit (currently $2,000 per return).

Retirement Accounts (IRAs) as long as the same student is not used as the basis for each credit or exclusion AND the family does not exceed the maximum Lifetime Learning credit (currently $2,000 per return).

Take Advantage of the New American Opportunity Tax Credit.

Comparison between American opportunity/hope credit and lifetime learning education credits:

AMERICAN OPPORTUNITY/HOPE CREDIT LIFETIME LEARNING CREDIT
Up to $2,500 per eligible student Up to $2,000 per return
Available for each eligible student until the first four years of post-secondary education are completed (available for 2009 and 2010 only) Available for all years of post secondary education and for courses to acquire or improve job skills
Student must be pursuing an undergraduate degree or other recognized education 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

Note: Information courtesy of: Internal Revenue Service Publication 970 "Tax Benefits for Education"

For Your Information (FYI):
This information’s covers a variety of important tax topics related to higher education. It is intended for your educational use and not as legal or tax advice; it does not cover every facet or the full scope of this subject. We highly recommend that you consult a professional tax advisor or attorney and encourage you to visit the Internal Revenue Service Web site, where you will find the complete text of various relevant IRS publications.

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