Hope Credit

The maximum Hope credit is $1,500.
Basically you receive credit for up to $2,000 of qualified tuition and related expenses. The credit is calculated as 100% of the first $1,000 plus 50% of the second $1,000.

The amount of the credit you can claim is determined by the amount you pay for qualified tuition and related expenses for each eligible student and the amount of your modified adjusted gross income (AGI).

Who can claim the Hope Credit?
Generally, you can claim the Hope Credit if all three of the following requirements are met.

• You pay qualified tuition and related expenses for higher education.
• You pay the tuition and related expenses for an eligible student.
• The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.

You cannot claim the Hope Credit if any of the following apply.

• Your filing status is married separately.
• You are listed as a dependent in the Exemptions section on another person's tax return (such as your parents').
• Your modified adjusted gross income can not be above a certain dollar amount.
• You (or your spouse) were a nonresident alien for any part of the tax year and the nonresident alien did not elect to be treated as a resident alien for tax purposes.
• You claim the Lifetime Learning Credit for the same student in the same year.

Qualified Tuition and Related Expenses. In general, qualified tuition and related expenses are tuition and fees required for enrollment or attendance at an eligible educational instititution

Eligible Education Institution. An eligible educational institution is an college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

Eligible Student. An eligible student is someone who meets all of the following requirements.

• Did not have expenses that were used to figure a Hope Credit in any 2 earlier tax years.
• Had not completed the first 2 years of postsecondary education (generally, the freshman and sophomore years of college) before this tax year.
• Was enrolled at least half-time in a program that leads to a degree, certificate, or other recognized educational credential for at least one academic period beginning in the tax year.
• Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

Non-refundable Credit. Education Credits are non-refundable. That means you can only take the credit up to the amount of your tax liability. Any amount unused is lost.

Planning Tip. Often, the student believes they will be eligible for better student aid opportunities if their parents no longer claim them on their taxes. However, the tax advantage to parents, who are generealy in a higher tax bracket, may offset any benefit the student, with a lower income and lower tax liability may realize. In situations where there is a question about who should or can claim the dependent exemption for a full-time college student, the parents or the student, it is advisable to calculate both returns both ways to deteremine the total impact. The amount of tax the parents save can often be larger than the grants the student may be eligible for.

References:

Publication 970, Tax Benefits for Education

Tax Topics Index