Hope Scholarship Credit

The Hope Scholarship Credit, provided by UnitedStatesCode|26|25A(b), is available to taxpayers who have incurred expenses related to the first two years of postsecondary education. For this credit to be claimed by a taxpayer, the student must attend school on at least a part-time basis. The credit can be claimed for education expenses incurred by the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent.

This credit allows for the first $1,100 in “qualified tuition and related expenses,” as well as half of qualifying expenses in excess of $1,100, to be fully creditable against the taxpayer’s total tax liability. The maximum amount of the credit is $1650 per eligible student.

Qualifying expenses

“Qualified tuition and related expenses” is defined as “the tuition and fees paid at most colleges and universities for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer.Samuel A. Donaldson, "Federal Income Taxation of Individuals: Cases, Problems and Materials", 2nd Edition (St. Paul: Thomson/West, 2007), 37-8. ] These qualifying expenses do not include student activity fees, athletic fees, insurance costs, or room and board expenses.

Limitations

However, the Hope Scholarship Credit is subject to limitations. First, the credit will be lost if the student is convicted of a felony drug offense. Second, a taxpayer may not take both a Hope Scholarship Credit and a Lifetime Learning Credit for the same student in the same year. [Form 8863: Education Credits. http://www.irs.gov/pub/irs-pdf/f8863.pdf] Third, a taxpayer may only take the credit until the first two years of post-secondary education are completed. [RS Publication 970 (2006): Tax Benefits for Education. http://www.irs.gov/publications/p970/ch02.html#d0e1756] Finally, the credit is subject to a limitation designed to reserve the benefit to low to moderate income taxpayers. The credit amount is phased out gradually once a taxpayer’s gross income exceeds $47,000, and the credit is phased out entirely once a taxpayer’s gross income exceeds $57,000. These numbers are increased for taxpayers who file jointly to $94,000 and $114,000 respectively.

References

External links

* [http://collegesavings.about.com/od/taxbreaksforcollege/a/hopecredit.htm "Profile: Hope Scholarship Tax Credit"] - (CollegeSavings.About.com)
* [http://www.finaid.org/otheraid/tax.phtml "Education Tax Benefits"] - (FinAid.org)