Education Credits
The Hope credit and the lifetime learning credit help parents and students pay for post-secondary education. Normally, a taxpayer can claim both his or her own tuition and required enrollment fees, as well as those for a dependent’s college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time. A taxpayer can also choose the lifetime learning credit, even if she is only taking one course. In some cases, however, she may do better by claiming the tuition and fees deduction, instead.
The education credit and the tuition and fees deduction cannot both be claimed for the same student in the same year. Special rules, including income limits, apply to each of these tax breaks.
American opportunity credit
This new education tax credit (a modification of the Hope credit) is available for 2009 and 2010. The maximum credit per student is $2,500 (100% of the first $2,000 and 25% of the next $2,000 of qualified education expenses). The credit is available for the first 4 years of postsecondary education, and 40% of the credit is refundable for most taxpayers. The threshold at which this credit is reduced is higher than that for the Hope and lifetime learning credits. For 2009, the amount of your credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You cannot claim a credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).
Eligibility for the Hope credit.
For 2009, you can claim a Hope credit only if at least one eligible student is attending an eligible educational institution in a Midwestern disaster area and you do not claim an American opportunity credit for any other student in the same year.
Hope and lifetime learning credit income limits increased.
For 2009, the amount of your Hope or lifetime learning credit is gradually reduced (phased out) if your MAGI is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return). You cannot claim a credit if your MAGI is $60,000 or more ($120,000 or more if you file a joint return). This is an increase from the 2008 limits of $48,000 and $58,000 ($96,000 and $116,000 if filing a joint return). For more information, see Effect of the Amount of Your Income on the Amount of Your Credit in Publication 970, chapters 3 and 4.
Can you claim more than one education credit this year? For each student, you can choose for any year only one of the credits. For example, if you choose to take the American opportunity credit for a child on your 2009 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2009. If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. However, you cannot claim the American opportunity credit for one student and the Hope credit for another student in the same year. If you want to claim either of these credits for 2009, you must use the same credit (American opportunity or Hope) for all eligible students. And, in order to claim the Hope credit for any student, at least one of the students must qualify under the rules for the Midwestern disaster areas. None of the requirements in this paragraph will prevent any eligible student from claiming the lifetime learning credit.
Table 35-1.Comparison of Education Credits
Caution. If you have more than one student eligible for the American opportunity credit or the Hope credit, you must claim the same credit for all eligible students. You cannot claim both the American opportunity credit and the Hope credit on the same tax return. However, you can claim both the American opportunity credit and the lifetime learning credit, or the Hope credit and the lifetime learning credit on the same return—but not for the same student. |
| | American Opportunity Credit – NEW | Hope Credit* | Lifetime Learning Credit |
| Maximum credit | Up to $2,500 credit per eligible student | Up to $1,800 ($3,600 if a student in a Midwestern disaster area) credit per eligible student | Up to $2,000 ($4,000 if a student in a Midwestern disaster area) credit per return |
| Limit on modified adjusted gross income (MAGI) | $180,000 if married filling jointly; $90,000 if single, head of household, or qualifying widow(er) | $120,000 if married filling jointly;
$60,000 if single, head of household, or qualifying widow(er) |
| Refundable or nonrefundable | 40% of credit may be refundable | Credit limited to the amount of tax you must pay on your taxable income |
| Number of years of postsecondary education | Available ONLY for the first 4 years of postsecondary education | Available ONLY for the first 2 years of postsecondary education | Available for all years of postsecondary education and for courses to acquire or improve job skills |
| Number of tax years credit available | Available ONLY for 4 tax years per eligible student | Available ONLY for 2 tax years per eligible student | Available for an unlimited number of years |
| Type of degree required | 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 |
| Number of courses | Student must be enrolled at least half time for at least one academic period beginning during the tax year | Available for one or more courses |
| Felony drug conviction | No felony drug convictions on student's records | Felony drug convictions are permitted |
| Qualified expenses | Tuition and required enrollment fees. Course-related books, supplies, and equipment do not need to be purchased from the institution in order to qualify. | Tuition and required enrollment fees, including amounts required to be paid to the institution for course-related books, supplies, and equipment. Additional expenses allowed for students in Midwestern disaster areas. |
| Payments for academic periods | Payments made in 2009 for academic periods beginning in 2009 and in the first 3 months of 2010 |
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