Life Support - Tax Facts
Suffering from College Sticker Shock?
Trim First and Second-Year Expenses with the Hope Tax Credit
A Tax Fact from The Tax Institute at H&R Block
With the many expenses families face today, saving for college sometimes slips on the priority list. The Hope credit, worth up to $1,800 (for 2008) in tax savings for each qualifying student in the first two years of college or vocational school, can help cushion the financial blow of higher education.
Am I Eligible?
If your dependent child plans to attend college, you may use the Hope credit if he or she is:
Income is also a factor in Hope credit eligibility. If you're single, the Hope credit is phased out as your Adjusted Gross Income (AGI) reaches $48,000 and completely disappears at $58,000. If you're married and file jointly, the AGI phase-out range lies between $96,000 and $116,000. Taxpayers who file using the married filing separately status cannot take advantage of the credit.
How Much Can the Hope Credit Help Me?
As an eligible individual, you may claim the Hope credit for 100 percent of the first $1,200 and 50 percent of the next $1,200 of qualified expenses, which include tuition and fees. Because this is a per-student limit, not a per-return limit, the maximum Hope credit you may claim for 2007 is $1,800 times the number of eligible students claimed on your tax return.
Another credit for higher education tuition and fees, called the Lifetime Learning credit, is worth up to $2,000. So, why claim a credit for $1,800 when you can claim a credit for $2,000? The answer is that it depends on how much you've paid in tuition. The Lifetime Learning credit is 20% of the first $10,000 of expenses. If your qualifying expenses for the year are less than $9,000, the Hope credit will be higher. If they're above $9,000, the Lifetime Learning credit will be higher. But see "Multiple Student Households" below if you have more than one student in the family.
Using the Credit Wisely
The Hope credit is nonrefundable, so if your credit exceeds your tax, the difference isn't refunded to you. On the other hand, the credit can also be used for prepaid expenses, such as tuition paid in December for January classes. This feature may be especially useful for students whose tuition fees fluctuate from semester to semester.
Multiple Student Households
If you and other qualifying individuals are all planning to take classes, the Hope credit and the Lifetime Learning credit can be used together. And although you can't claim both credits for the same expenses - or even the same student - you can claim a Hope credit for each qualifying student and a lifetime learning credit for a different student's qualifying expenses. The cost of education has never been higher, but with careful planning the Hope credit can keep college within reach.
This Tax Fact is brought to you by The Tax Institute at H&R Block.
To view other helpful tax information or listen to our Tax Fact podcasts, visit www.digits.hrblock.com
As always...everyone's tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.
This Tax Fact is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.
Trim First and Second-Year Expenses with the Hope Tax Credit
A Tax Fact from The Tax Institute at H&R Block
With the many expenses families face today, saving for college sometimes slips on the priority list. The Hope credit, worth up to $1,800 (for 2008) in tax savings for each qualifying student in the first two years of college or vocational school, can help cushion the financial blow of higher education.
Am I Eligible?
If your dependent child plans to attend college, you may use the Hope credit if he or she is:
- Enrolled in one of the first two years of post-secondary education - generally the freshman and sophomore years of college;
- Enrolled in a program that leads to a degree, certificate or other recognized educational credential;
- Taking at least one-half the normal full-time workload for his or her study course during at least one 2008 academic period; and
- Free of felony convictions for the possession or sale of illegal substances.
How Much Can the Hope Credit Help Me?
As an eligible individual, you may claim the Hope credit for 100 percent of the first $1,200 and 50 percent of the next $1,200 of qualified expenses, which include tuition and fees. Because this is a per-student limit, not a per-return limit, the maximum Hope credit you may claim for 2007 is $1,800 times the number of eligible students claimed on your tax return.
Another credit for higher education tuition and fees, called the Lifetime Learning credit, is worth up to $2,000. So, why claim a credit for $1,800 when you can claim a credit for $2,000? The answer is that it depends on how much you've paid in tuition. The Lifetime Learning credit is 20% of the first $10,000 of expenses. If your qualifying expenses for the year are less than $9,000, the Hope credit will be higher. If they're above $9,000, the Lifetime Learning credit will be higher. But see "Multiple Student Households" below if you have more than one student in the family.
Using the Credit Wisely
The Hope credit is nonrefundable, so if your credit exceeds your tax, the difference isn't refunded to you. On the other hand, the credit can also be used for prepaid expenses, such as tuition paid in December for January classes. This feature may be especially useful for students whose tuition fees fluctuate from semester to semester.
Multiple Student Households
If you and other qualifying individuals are all planning to take classes, the Hope credit and the Lifetime Learning credit can be used together. And although you can't claim both credits for the same expenses - or even the same student - you can claim a Hope credit for each qualifying student and a lifetime learning credit for a different student's qualifying expenses. The cost of education has never been higher, but with careful planning the Hope credit can keep college within reach.
This Tax Fact is brought to you by The Tax Institute at H&R Block.
To view other helpful tax information or listen to our Tax Fact podcasts, visit www.digits.hrblock.com
As always...everyone's tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.
This Tax Fact is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.
