Tax Credits

Two types of tax credits from which you can subtract the full amount from federal income tax are available to American college students. The first is the Hope Scholarship and the second is Lifetime Learning Credits. Both are available to any American student in tertiary education; with a few differences in the way they are applied and the criteria.

The Hope Scholarship Credit

The Hope Credit, also known as the American Opportunity Credit, is available to students and their parents and has been modified for the 2009/10 tax years. Adjustments have been made to the credit to make it more accessible to a wider segment of the population including those with higher incomes and those who owe no tax.

The credit has also been modified to include qualifying education expenses and has been expanded from two years of eligibility to four years. That is really great news for American college students.

Hope Credit FAQ:

How much is the American opportunity tax credit worth?

The Hope tax credit has been increased by $700 per year and is now up to $2,500 of the cost of qualified tuition and related expenses paid during the taxable year.

What education expenses qualify?

Tuition and expenses for course materials including books, supplies and equipment needed for a course of study.

Does a computer qualify as a course expense?

Expenditure for a computer qualifies for the credit if the computer is needed as a condition of enrolment or attendance.

Who is eligible for the tax credit?

A taxpayer who pays qualified tuition and related expenses and whose federal income tax return has a modified adjusted gross income of $80,000 or less ($160,000 or less for joint filers) is eligible for the credit. The credit is reduced rateably if a taxpayer’s modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot benefit from this credit (IRS.gov).

Can I claim the tuition and fees tax deduction and the Hope credit?

No. You will have to choose which has a greater benefit for your situation.

Lifetime Learning Credits

These tax credits are available to parents of students and are available for the costs of tuition and other related education expenses like books. It is not possible to claim both a Hope Credit and a Lifetime Learning Credit for the same student in the same year.

Like the Hope Credit the Lifetime Learning Credit is fully deductible from federal income tax.

Lifetime Learning Credit FAQ:

Who can claim the Lifetime Learning Credit?

Any person claiming qualified expenses at a qualified institution.

Can family members supporting a student’s education claim the credit?

Yes, any individual family member paying the expenses for a qualifying student can claim the credit, as long as only one person claims the credit.

Do the same eligibility requirements apply as for the Hope Scholarship?

Yes, the eligibility requirements are the same.

Can I claim the credit if I am only taking a single course?

Yes, as long as you are within the income limits and the only one claiming the credit a single course can be claimed.

Can an individual claim for more than one family member?

Yes, but it is important to remember that unlike the Hope scholarship the Lifetime Learning Credit is based on family income rather than individual income.

Is there a limit on the number of years a credit can be claimed?

No, there is no limit to the number of years a claim can be made as long as the criteria for the credit are met.

Other Scholarships and Loans

In addition to the Hope and Lifetime Learning tax credits, all other education costs and tuition fees are eligible for deductions from taxable income.