Tax Tips

Available Education Credits

There are 2 credits allowed for higher education: the Hope Credit and the Lifetime Learning Credit. You can claim the credits for eligible expenses paid on behalf of yourself, your spouse or a dependent for whom you can claim an exemption.

• Hope Credit — The credit is allowed for the first 2 years of college. It may not be claimed for more than 2 years, and the student must be enrolled in at least half of a full-time load in a degree program. Plus, the student can't be convicted of felony possession of a controlled substance.
• Lifetime Learning Credit — This can be claimed for any number of years. The number of hours the student is enrolled isn't a factor for the Lifetime Learning Credit.

Who qualifies?

To claim the credit, modified adjusted gross income (MAGI) must be less than $57,000 for Single, Head of Household and Qualifying Widow(er) ($110,000 for Married Filing Jointly), and the student must be attending an eligible institution. Those who are Married Filing Separately can't claim the credits.

If the parents are eligible to claim the student as a dependent, then they claim the credit unless they choose not to claim the exemption. The student can't claim his or her exemption even though he or she can claim the credit.

What is an eligible institution?

Any accredited public, non-profit, or private college, university, vocational school, or other postsecondary institution eligible to participate in a student aid program will qualify. Talk to the admissions department to find out if it's eligible.

Eligible Expenses

Required tuition and fees paid during the year for your enrollment at an eligible educational institution qualifies as an eligible expense. The tuition may be paid by cash, check, credit card or with money borrowed. Eligible benefits must be reduced by nontaxable eduction benefits received during the year, such as tax-free scholarships and tax-free education assistance provided by an employer.

The following items aren't considered eligible expenses:

• room, board or other living expenses
• books, supplies or equipment (unless specifically required as a condition of enrollment and purchased from the institution)
• courses involving sports, games or hobbies (unless as part of a degree program)

Claiming the Credits

The Hope Credit is a credit of up to $1,650 per student per year. The Lifetime Learning Credit is a credit of up to $2,000 per return per year. Both credits are claimed on Form 8863, which should be filed with your Form 1040. For more information on how the Hope Credit or the Lifetime Learning Credit applies to you, talk to a tax professional.

Tuition and Fees Deduction

The Tuition and Fees Deduction, a deduction of up to $4,000 for qualified tuition and fees, may provide a larger tax benefit than an education credit. Figure both the credit and the allowable deduction and claim the one that provides the larger tax benefit. Because it's taken as an adjustment to your income, you don't have to itemize to take it. To claim the deduction, your MAGI must be less than $80,000 ($160,000 if Married Filing Jointly). If your MAGI is between $65,000 and $80,000 ($130,000 and $160,000 if Married Filing Jointly), the deduction is limited to $2,000. Keep in mind, those who are Married Filing Separately can't claim this deduction.