How Is the Credit Figured?

The amount of the Hope credit is the sum of:

1. 100% of the first $1,000 of qualified tuition and related expenses you paid for each eligible student, and
2. 50% of the next $1,000 of qualified tuition and related expenses you paid for each eligible student.

The maximum amount of Hope credit you can claim in 2000 is $1,500 times the number of eligible students. You can claim the full $1,500 for each eligible student for whom you paid at least $2,000 of qualified expenses. However, the credit may be reduced based on your modified adjusted gross income. See Does Income Affect the Amount of the Credit, later.

Example. Jon and Karen are married and file a joint tax return. For 2000, they claim an exemption for their dependent daughter on their tax return. Their modified adjusted gross income is $70,000. Their daughter is in her sophomore (second) year of studies at the local university. Jon and Karen pay qualified tuition and related expenses of $4,300 in 2000.

Jon and Karen, their daughter, and the local university meet all of the requirements for the Hope credit. Jon and Karen can claim a $1,500 Hope credit in 2000. This is 100% of the first $1,000 of qualified tuition and related expenses, plus 50% of the next $1,000.

Does Income Affect the Amount of the Credit?

The amount of your Hope credit is phased out (gradually reduced) if your modified adjusted gross income is between $40,000 and $50,000 ($80,000 and $100,000 if you file a joint return). You cannot claim a Hope credit if your modified adjusted gross income is $50,000 or more ($100,000 or more if you file a joint return).

Modified adjusted gross income. For most taxpayers, modified adjusted gross income will be their adjusted gross income (AGI) as figured on their federal income tax return. On Form 1040, AGI is line 33. On Form 1040A, AGI is line 19. However, you must modify your AGI if you excluded income earned abroad or from certain U.S. territories or possessions. If this applies to you, increase your AGI by the following amounts you excluded from your income.

1. Foreign earned income of U.S. citizens or residents living abroad.
2. Housing costs of U.S. citizens or residents living abroad.
3. Income from sources within Puerto Rico, Guam, American Samoa, or the Northern Mariana Islands.

How the phaseout works. The phaseout (reduction) works on a sliding scale. The higher your modified adjusted gross income, the more your credit is reduced. The phaseout, if any, is figured when you complete Part III of Form 8863.

Previous| First | Next

Publication Index | IRS-Forms Main | Home