2008 & 2009 Education Credits
American Opportunity Credit
As a community college student, you are eligible to receive education tax credits that can reduce the expense of your education. There are three education tax credits available, the American Recovery and Reinvestment Act, Hope Credit and the Lifetime Learning Credit. The credits are based on education expenses paid for you, your spouse, or your dependents.
Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses.
The American Opportunity Credit was not available on the 2008 returns taxpayers filed during 2009. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to 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 post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.
Special rules apply to a student attending college in a Midwestern disaster area. For tax-year 2009, only, taxpayers can choose to claim either a special expanded Hope Credit of up to $3,600 for the student or the regular American Opportunity Credit.
If you have questions about the American Opportunity Credit, see http://www.irs.gov/newsroom/article/0,,id=205674,00.html
The Hope Credit generally applies to 2008 and earlier tax years. It helps parents and students pay for post-secondary education. The Hope Credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. The Hope Credit you are allowed may be limited by the amount of your income and the amount of your tax.
The Hope Credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return. Normally, you can claim tuition and required enrollment fees paid for your own, as well as your dependents’ college education. The Hope Credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time.
The Taxpayer: An eligible taxpayer must file a federal tax return and owe taxes to claim the Hope credit. The taxpayer must also claim an eligible student as a dependent on the tax return, unless the credit is for the taxpayer or the taxpayer's spouse. (This means the eligible taxpayer may also be the eligible student.) In 2008, taxpayers cannot claim a Hope credit if their modified adjusted gross income (AGI) is $58,000 or more for a single taxpayer ($116,000 or more for those filing a joint return). The Hope credit amount is reduced gradually for families with incomes between $48,000 and $58,000 ($96,000 and $116,000 for joint returns).
The Student: An eligible student must be enrolled at least half-time for at least one academic period beginning in 2008 at an eligible program leading to a degree or certificate at an eligible school AND can not have completed the first two years of undergraduate study. 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.) Students convicted of a federal or state drug felony before the end of 2008 are not eligible for the Hope credit.
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 isn't used as the basis for each credit or exclusion AND the family doesn't exceed the Lifetime Learning maximum per family.
The Lifetime Learning Credit
The Lifetime Learning Credit is a nonrefundable tax credit available to individuals who file a tax return and owe taxes. The amount of the credit is subtracted from the taxes owed, rather than reducing taxable income as with a tax deduction. Individuals who do not pay taxes are not eligible for a Lifetime Learning credit. If a taxpayer owes less in taxes than the amount of Lifetime Learning tax credit they are eligible for, they are only eligible for a credit equal to the amount of taxes they owe.
A 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. The amount of the Lifetime Learning credit is 20% of the first $10,000 of qualified educational expenses paid for all eligible students. Therefore, the maximum amount of a Lifetime Learning tax credit is $2,000. The Lifetime Learning credit is available for all years of postsecondary education and for courses taken to acquire or improve job skills, unlike the Hope credit which is only available for two years.
How Do You Get The Credits?
When Is It Available?
Generally, the deduction is allowed for qualified tuition and expenses paid in 2008 in connection with enrollment at an institution of higher education during 2008 or for an academic period beginning in 2008 or in the first three months of 2009. For instance, if you paid $1,500 in December 2008 for qualified tuition for a spring 2008 semester that begins in January 2009, that $1,500 can be used to figure the 2008 deduction.
For answers to some frequently asked questions, refer to http://www.irs.gov/faqs/faq-kw52.html and for additional information on education credits, refer to Publication 970, Tax Benefits for Education.