The American Opportunity Credit
The recently passed economic stimulus legislation included the American Opportunity Credit which modifies the Hope Credit for the 2009 and 2010 tax filing years. The new credit increased the tax credit from $1,500 to $2,500 and makes it available for a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four years of college instead of two.
The full credit is available to individuals whose modified adjusted gross income is $80,000 or less for singles, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels.
There are other tax breaks available like the lifetime learning credit and a tuition deduction up to $4,000 but you can only claim one tax break per child each year.
Hope AND LIFETIME LEARNING CREDITS (federal tax credits)
The Hope and Lifetime learning credits is a tax credit that are subtracted from the tax your family owes, instead of subtracting them from taxable income like a tax deduction.
For 2008, the amount of your Hope or lifetime learning credit is gradually reduced if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim a credit if your MAGI is $58,000 or more ( $116,000 or more if you file a joint return).
Hope Credit
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Your family must file a federal tax return and owe taxes to get this tax credit.
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You cannot get a refund for the Hope credit if your family doesn't pay taxes.
If your family owes less in taxes than the maximum amount of the Hope tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.
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For 2008, the maximum amount of the Hope credit is 1,800 for each eligible dependent for up to two tax years.
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The Hope credit is available only until the first two years of postsecondary education are complete.
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The exact amount of the Hope credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition.
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The total credit is also based on how many eligible dependents are in your family, rather than a maximum dollar amount for the family, like the Lifetime Learning tax credit.
- Questions regarding these tax credits should be directed to the Internal Revenue Service or a qualified tax preparer.
Life Long Learning Tax Credit
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The Lifetime Learning credit is a tax credit available to individuals who file a tax return and owe taxes. This means the amount of the credit is subtracted from the taxes your family owes, rather reducing taxable income like a tax deduction does.
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If your family owes less in taxes than the maximum amount of the Lifetime Learning tax credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.
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As of tax year 2008 your family may claim a tax credit of up to $2,000 per tax year for the taxpayer, taxpayer's spouse, or any eligible dependents for an unlimited number of tax years.
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The amount of the Lifetime Learning tax credit is 20% of the first $10,000 of qualified educational expenses paid for all eligible students.
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The Lifetime Learning credit is available for all years of postsecondary education and for courses to acquire or improve job skills. Unlike the Hope credit (which is only available for two years) the Lifetime credit is available for an unlimited number of years.
- The actual amount of the credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. This credit is family-based (up to $2,000 per tax return) rather than based on the number of dependents in your family as with the Hope credit.
Who Qualifies
The Taxpayer: An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent unless the credit is for the taxpayer or the taxpayer's spouse. (This means the eligible taxpayer may also be the eligible student.)
An eligible student may be enrolled in an eligible program leading to an undergraduate or graduate degree at an eligible school during the calendar year OR may be enrolled level in any course of instruction at an eligible school to acquire/improve the student's job skills during the calendar year. You may claim the credit yourself if you are not claimed as a dependent by another taxpayer. (Once again, this means that the eligible student may also be the eligible taxpayer.)
Can a Family Claim Multiple Benefits?
A family may claim a Lifetime Learning credit, a Hope credit, and an exclusion from gross income for certain distributions from qualified state tuition programs or education IRAs as long as the same student is not used as the basis for each credit or exclusion and the family does not exceed the Lifetime Learning maximum per family.
