College Student Tax Breaks: What Is A Hope Credit?

The Hope credit can save taxpayers as much as $1500 on their taxes for the first two years of college education.

A Hope credit is a non-refundable tax credit that can save college students, or their families, as much as $1500 per year on their federal income taxes for the first two years that the students are in college.

To be eligible to claim the credit, the taxpayer must be paying the qualified education expenses for an eligible student who is enrolled in an eligible educational institution. The terms in this paragraph are described in greater detail below.

Eligible taxpayers

In order for a taxpayer to be able to take the Hope credit,

(1) The taxpayer must declare the student as a dependent; OR

(2) The taxpayer must be the student's spouse; OR

(2) The taxpayer must be the student (that is, the student claims the credit for himself or herself), and is not claimed as a dependent on another person's tax return.



In addition, the following requirements must be met:

(1) The taxpayer's filing status must not be married filing separately; and

(2) The taxpayer's adjusted gross income must be less than $51,000 if the taxpayer is single, or less than $103,000 if married filing jointly.

Qualified education expenses

Qualified expenses include tuition and related expenses, but only when those related expenses must be paid to the school as a condition of enrollment. For example, a mandatory student activity fee, billed by the school, would be a qualified expense. But the money spent on books bought at a college bookstore would not be a qualified expense, because students are not required to buy their books directly from the school.

Personal expenses, including room and board, are NOT qualified education expenses, even if mandatory and paid directly to the school.

Eligible student

An eligible student is someone who has not yet completed his or her first two years of post-secondary education, and who was enrolled at least half-time, for at least one academic period during the year, in a program leading to a degree, certificate, or other recognized credential. There is also a requirement that the student not have any felony convictions for possessing or distributing illegal drugs.

Eligible educational institution

An eligible educational institution is any college, vocational school, or other post-secondary school that is eligible to participate in the federal student aid program. As a practical matter, almost all post-secondary schools in the United States will be considered eligible educational institutions.

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If you are an eligible taxpayer, you may claim 100% of the first thousand dollars of qualified expenses, and 50% of the next thousand. Because this is a tax credit, rather than a deduction, the amount is subtracted directly from the amount of tax that you have to pay. The credit is not, however, refundable, which means that if the credit is more than your tax, you can reduce your tax to zero, but you will not get a refund for the difference. The credit is also reduced if your modified adjusted gross income is between $41,000 and $51,000 if you are single, or between $83,000 and $103,000 if you are married filing jointly.

To claim the credit, you must submit Form 8863 with your 1040 or 1040A.

For further information before using this credit, see IRS Publication 970, available on the IRS website or from an IRS office, or ask for information at the student's college.

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