| Publication 17 |
2008 Tax Year |
Income limits increased. Beginning in 2008, the amount of your Hope or lifetime learning credit is gradually reduced (phased out) 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). This is an increase from the
2007 limits of $47,000 and $57,000 ($94,000 and $114,000 if filing a joint return). For more information, see
Effect of the Amount of Your Income on the Amount of Your Credit
, later.
Maximum amount of Hope credit increased. Beginning in 2008, the maximum amount of the Hope credit has increased to $1,800. This is an increase from the 2007 maximum
amount of $1,650.The amount of the Hope credit (per eligible student) is the sum of 100% of the first $1,200 of qualified
education expenses you paid for the eligible student and 50% of the next $1,200 of qualified education expenses you paid for
that student. For more information, see
Figuring the Credit
under
Information for Only the Hope Credit
.
Students in Midwestern disaster areas. The following changes apply only to students attending an eligible educational institution in a Midwestern disaster area in
the states of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, and Wisconsin.
This chapter discusses two tax credits (referred to here as education credits) available to persons who pay expenses for higher
education. They are:
The chapter will do the following.
-
Give you general information that applies to both of the credits.
-
Give you specific information about each of the credits.
-
Help you choose which of the credits to claim.
-
Show you how to figure the credit you choose.
Can you claim both education credits this year.
For each student, you can elect for any year only one of the credits. For example, if you elect to take the Hope credit
for a child on your 2008 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2008.
If you are eligible to claim the Hope credit and you are also eligible to claim the lifetime learning credit for the
same student in the same year, you can choose to claim either credit, but not both. For 2008, if the total qualified education
expenses for a student are less than $9,000, it will generally be to your benefit to claim the Hope credit.
If you pay qualified education expenses for more than one student in the same year, you can choose to take credits
on a per-student, per-year basis. This means that, for example, you can claim the Hope credit for one student and the lifetime
learning credit for another student in the same year.
Differences between the Hope and lifetime learning credits.
There are several differences between these two credits. For example, you can claim the Hope credit based on the same
student's expenses for no more than 2 years. However, there is no limit on the number of years for which you can claim a lifetime
learning credit based on the same student's expenses. The differences between the two credits are summarized in Table 35-1.
Useful Items - You may want to see:
Information for Both the Hope and Lifetime Learning Credits
Several rules are common to both education credits. These are discussed below.
The following rules will help you determine if you are eligible to claim an education credit on your tax return.
Generally, you can claim an education credit if all three of the following requirements are met.
-
You pay qualified education expenses of higher education.
Note. Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent,
are considered paid by you.
-
You pay the education expenses for an eligible student.
-
The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
“Qualified education expenses” are defined later under
What Expenses Qualify
. A “dependent for whom you claim an exemption” is defined later under
Who Can Claim a Dependent's Expenses
. “Eligible students” are defined differently for each credit. See Who Is an Eligible Student under the specific information for either the Hope or lifetime learning credit.
You may find Figure 35-A, at the end of the chapter, helpful in determining if you can claim an education credit on your tax return.
Who Cannot Claim a Credit
You cannot claim an education credit for 2008 if any of the following apply.
-
Your filing status is married filing separately.
-
You are listed as a dependent in the Exemptions section on another person's tax return (such as your parents'). See
Who Can Claim a Dependent's Expenses
, later.
-
Your MAGI is $58,000 or more ($116,000 or more in the case of a joint return). MAGI is explained later under
Effect of the Amount of Your Income on the Amount of Your Credit
.
-
You (or your spouse) were a nonresident alien for any part of 2008 and the nonresident alien did not elect to be treated as
a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide
for Aliens.
-
You claim a tuition and fees deduction for the same student in 2008.
The education credits are based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom
you claim an exemption on your tax return. Generally, a credit is allowed for qualified education expenses paid in 2008 for
an academic period beginning in 2008 or in the first 3 months of 2009.
For example, if you paid $1,500 in December 2008 for qualified tuition for the Spring 2009 semester beginning in January 2009,
you may be able to use that $1,500 in figuring your 2008 credit.
Academic period.
An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session)
as reasonably determined by an educational institution. In the case of an educational institution that uses credit hours or
clock hours and does not have academic terms, each payment period can be treated as an academic period.
Paid with borrowed funds.
You can claim an education credit for qualified education expenses paid with the proceeds of a loan. Use the expenses
to figure the education credit for the year in which the expenses are paid, not the year in which the loan is repaid. Treat
loan payments sent directly to the educational institution as paid on the date the institution credits the student's account.
Student withdraws from class(es).
You can claim an education credit for qualified education expenses not refunded when a student withdraws.
Qualified Education Expenses
For purposes of an education credit, qualified education expenses are tuition and certain related expenses required for enrollment
or attendance at an eligible educational institution.
Eligible educational institution.
An eligible educational institution is any college, university, vocational school, or other postsecondary educational
institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually
all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational
institution should be able to tell you if it is an eligible educational institution.
Certain educational institutions located outside the United States also participate in the U.S. Department of Education's
Federal Student Aid (FSA) programs.
Related expenses.
Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education
expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance.
In the following examples, assume that each student is an eligible student at an eligible educational institution.
Example 1.
Jackson is a sophomore in University V's degree program in dentistry. This year, in addition to tuition, he is required to
pay a fee to the university for the rental of the dental equipment he will use in this program. Because the equipment rental
fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense.
Example 2.
Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to
use in their mandatory first-year classes. The college has no policy about how students should obtain these materials, but
any student who purchases them from College W's bookstore will receive a bill directly from the college. Charles bought his
books from a friend, so what he paid for them is not a qualified education expense. Donna bought hers at College W's bookstore.
Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because
the books and materials are not required to be purchased from College W for enrollment or attendance at the institution.
Example 3.
When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her
tuition. This activity fee is required of all students, and is used solely to fund on-campus organizations and activities
run by students, such as the student newspaper and the student government. No portion of the fee covers personal expenses.
Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Therefore,
it is a qualified expense.
Students in Midwestern disaster areas.
The definition of qualified education expenses is expanded for students in a Midwestern disaster area. In addition
to tuition and fees required for enrollment or attendance at an eligible educational institution, qualified education expenses
for a student in a Midwestern disaster area include the following.
-
Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution
-
For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational
institution.
-
For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the
costs are not more than the greater of the following two amounts.
-
The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of
attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
-
The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
You will need to contact the eligible educational institution for qualified room and board costs.
No Double Benefit Allowed
You cannot do any of the following.
-
Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education
credit based on those same expenses.
-
Claim an education credit in the same year you are claiming a tuition and fees deduction for the same student.
-
Claim a Hope credit and a lifetime learning credit based on the same qualified education expenses.
-
Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell
education savings account (ESA) or qualified tuition program (QTP).
-
Claim a credit based on qualified education expenses paid with a tax-free scholarship, grant, or employer-provided educational
assistance. See Adjustments to Qualified Education Expenses, next.
Adjustments to Qualified Education Expenses
If you pay qualified education expenses with certain tax-free funds, you cannot claim a credit for those amounts. You must
reduce the qualified education expenses by the amount of any tax-free educational assistance and refund(s) you received.
Tax-free educational assistance.
This includes:
-
Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Publication 970),
-
Pell grants (see chapter 1 of Publication 970),
-
Employer-provided educational assistance (see chapter 11 of Publication 970),
-
Veterans' educational assistance (see chapter 1 of Publication 970), and
-
Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.
Refunds.
Qualified education expenses do not include expenses for which you, or someone else who paid qualified education expenses
on behalf of a student, receive a refund. For more information, see Refunds in chapters 2 and 3 of Publication 970.
Amounts that do not reduce qualified education expenses.
Do not reduce qualified education expenses by amounts paid with funds the student receives as:
-
Payment for services, such as wages,
-
A loan,
-
A gift,
-
An inheritance, or
-
A withdrawal from the student's personal savings.
Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's
tax return in the following situations.
-
The use of the money is restricted to costs of attendance (such as room and board) other than qualified education expenses.
-
The use of the money is not restricted and is used to pay education expenses that are not qualified (such as room and board).
Example 1.
Jackie paid $3,000 for tuition and $5,000 for room and board at University X. The university did not require her to pay any
fees in addition to her tuition in order to enroll in or attend classes. To help pay these costs, she was awarded a $2,000
scholarship and a $4,000 student loan.
The terms of the scholarship state that it may be used to pay any of Jackie's college expenses. Because she applied it toward
her tuition, the scholarship is tax free. Therefore, for purposes of figuring an education credit (either Hope or lifetime
learning), she must first use the $2,000 scholarship to reduce her tuition (her only qualified education expense). The student
loan is not tax-free educational assistance, so she does not use it to reduce her qualified expenses. Jackie is treated as
having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship).
Example 2.
The facts are the same as in Example 1, except that Jackie uses the $2,000 scholarship to pay room and board, and, therefore, reports her entire scholarship as
income on her tax return. In this case, the scholarship is allocated to expenses other than qualified education expenses.
Jackie is treated as paying the entire $3,000 tuition with other funds and can figure her education credit on the entire $3,000.
Expenses That Do Not Qualify
Qualified education expenses do not include amounts paid for:
This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.
Sports, games, hobbies, and noncredit courses.
Qualified education expenses generally do not include expenses that relate to any course of instruction or other education
that involves sports, games or hobbies, or any noncredit course. However, if the course of instruction or other education
is part of the student's degree program, these expenses can qualify.
Comprehensive or bundled fees.
Some eligible educational institutions combine all of their fees for an academic period into one amount. If you do
not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much
you paid for personal expenses, such as those listed above, contact the institution. The institution is required to make this
allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T, Tuition
Statement. See Figuring the Credit, under the specific information for either the Hope or lifetime learning credit, for more information about Form 1098-T.
Who Can Claim a Dependent's Expenses
If there are qualified education expenses for your dependent for a year, either you or your dependent, but not both of you,
can claim an education credit for your dependent's expenses for that year.
For you to claim an education credit for your dependent's expenses, you must also claim an exemption for your dependent. You
do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c.
Expenses paid by dependent.
If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid
(or deemed paid) by your dependent as if you had paid them. Include these expenses when figuring the amount of your education
credit.
Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved
divorce decree are treated as paid by your dependent.
Expenses paid by you.
If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when
figuring the amount of an education credit. If neither you nor anyone else claims an exemption for the dependent, only the
dependent can include any expenses you paid when figuring an education credit.
Expenses paid by others.
Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly
to an eligible educational institution to pay for an eligible student's qualified education expenses. In this case, the student
is treated as receiving the payment from the other person and, in turn, paying the institution. If you claim an exemption
on your tax return for the student, you are considered to have paid the expenses.
Example.
In 2008, Ms. Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education
expenses. For purposes of claiming an education credit, Todd is treated as receiving the money as a gift from his grandmother
and, in turn, paying his qualified education expenses himself.
Unless an exemption for Todd is claimed on someone else's 2008 tax return, only Todd can use the payment to claim an education
credit.
If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2008 tax return, whoever claims the exemption
may be able to use the expenses to claim an education credit. If anyone else claims an exemption for Todd, Todd cannot claim
an education credit.
Tuition reduction.
When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse
or dependent child of an employee), the amount of the reduction may or may not be taxable. If it is taxable, the employee
is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student.
For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1 of Publication 970.
Effect of the Amount of Your Income on the Amount of Your Credit
The amount of your education credit is phased out (gradually reduced) if your MAGI is between $48,000 and $58,000 ($96,000
and $116,000 if you file a joint return). You cannot claim an education credit if your MAGI is $58,000 or more ($116,000 or
more if you file a joint return).
Modified adjusted gross income (MAGI).
For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return.
MAGI when using Form 1040A.
If you file Form 1040A, your MAGI is the AGI on line 22 of that form.
MAGI when using Form 1040.
If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any:
-
Foreign earned income exclusion,
-
Foreign housing exclusion,
-
Foreign housing deduction,
-
Exclusion of income for bona fide residents of American Samoa, and
-
Exclusion of income for bona fide residents of Puerto Rico.
Phaseout.
If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit
using lines 7–13 of Form 8863.
When Must the Credit Be Repaid (Recaptured)
If, after you file your 2008 tax return, you or someone else receives tax-free educational assistance for, or a refund of,
an expense you used to figure an education credit on that return, you may have to repay all or part of the credit. You must
refigure your education credit(s) for 2008 as if the assistance or refund was received in 2008. Subtract the amount of the
refigured credit from the amount of the credit you claimed. The result is the amount you must repay. You add the repayment
(recapture) to your tax liability for the year in which you receive the assistance or refund. See the instructions for your
tax return for that year to find out how to report the recapture amount. Your original 2008 tax return does not change.
Information for Only the Hope Credit
For the tax year, you may be able to claim a Hope credit of up to $1,800 ($3,600 if a student in a Midwestern disaster area)
for qualified education expenses paid for each eligible student.
Who Is an Eligible Student
To claim the Hope credit, the student for whom you pay qualified education expenses must be an eligible student. This is a
student who meets all of the following requirements.
-
The student did not have expenses that were used to figure a Hope credit in any 2 earlier tax years.
-
The student had not completed the first 2 years of postsecondary education (generally, the freshman and sophomore years of
college) before 2008.
-
For at least one academic period beginning in 2008, the student was enrolled at least half-time in a program leading to a
degree, certificate, or other recognized educational credential.
-
The student was free of any federal or state felony conviction for possessing or distributing a controlled substance as of
the end of 2008.
Completion of first 2 years.
A student who was awarded 2 years of academic credit for postsecondary work completed before 2008 has completed the
first 2 years of postsecondary education. This student generally would not be an eligible student for purposes of the Hope
credit.
Exception.
Any academic credit awarded solely on the basis of the student's performance on proficiency examinations is disregarded
in determining whether the student has completed 2 years of postsecondary education.
Enrolled at least half-time.
A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for
his or her course of study.
The standard for what is half of the normal full-time work load is determined by each eligible educational institution.
However, the standard may not be lower than any of those established by the Department of Education under the Higher Education
Act of 1965.
Example 1.
Marty graduated from high school in June 2007. In September, he enrolled in an undergraduate degree program at College U,
and attended full time for both the 2007 Fall and 2008 Spring semesters. For the 2008 Fall semester, Marty was enrolled less
than half-time. Because Marty was enrolled in an undergraduate degree program on at least a half-time basis for at least one
academic period that began during 2007 and at least one academic period that began during 2008, he is an eligible student
for tax years 2007 and 2008 (including the 2008 Fall semester when he enrolled at College U on less than a half-time basis).
Example 2.
After taking classes at College V on a half-time basis for the 2007 Spring and Fall semesters, Sharon became a full-time student
for the 2008 Spring semester. College V classified Sharon as a second-semester sophomore for the 2008 Spring semester and
as a first-semester junior for the 2008 Fall semester. Because College V did not classify Sharon as having completed the first
two years of postsecondary education as of the beginning of 2008, Sharon is an eligible student for tax year 2008. Therefore,
the qualified education expenses paid for the 2008 Spring semester and the 2008 Fall semester are taken into account in calculating
any Hope credit for 2008.
Example 3.
During the 2007 Fall semester, Luis was a high school student who took classes on a half-time basis at College X. Luis was
not enrolled as part of a degree program at College X because College X only admits students to a degree program if they have
a high school diploma or equivalent. Because Luis was not enrolled in a degree program at College X during 2007, Luis was
not an eligible student for tax year 2007.
Example 4.
The facts are the same as in Example 3. During the 2008 Spring semester, Luis again attended College X but not as part of a degree program. Luis graduated from
high school in June 2008. For the 2008 Fall semester, Luis enrolled as a full-time student in College X as part of a degree
program, and College X awarded Luis credit for his prior coursework at College X. Because Luis was enrolled in a degree program
at College X for the 2008 Fall term on at least a half-time basis, Luis is an eligible student for all of tax year 2008. Therefore,
the qualified education expenses paid for classes taken at College X during both the 2008 Spring semester (during which Luis
was not enrolled in a degree program) and the 2008 Fall semester are taken into account in computing any Hope credit.
Example 5.
Diana graduated from high school in June 2006. In January 2007, Diana enrolled in a one-year postsecondary certificate program
on a full-time basis to obtain a certificate as a travel agent. Diana completed the program in December 2007, and was awarded
a certificate. In January 2008, she enrolled in a one-year postsecondary certificate program on a full-time basis to obtain
a certificate as a computer programmer. Diana is an eligible student for both tax years 2007 and 2008 because she meets the
degree requirement, the work load requirement, and the year of study requirement for those years.
The amount of the Hope credit (per eligible student) is the sum of:
-
100% of the first $1,200 ($2,400 if a student in a Midwestern disaster area) of qualified education expenses you paid for
the eligible student, and
-
50% of the next $1,200 ($2,400 if a student in a Midwestern disaster area) of qualified education expenses you paid for that
student.
The maximum amount of Hope credit you can claim in 2008 is $1,800 ($3,600 if a student in a Midwestern disaster area) times
the number of eligible students. You can claim the full $1,800 ($3,600 if a student in a Midwestern disaster area) for each
eligible student for whom you paid at least $2,400 ($4,800 if a student in a Midwestern disaster area) of qualified education
expenses. However, the credit may be reduced based on your MAGI. See
Effect of the Amount of Your Income on the Amount of Your Credit
, earlier.
Example.
Jon and Karen Frost are married and file a joint tax return. For 2008, they claim an exemption for their dependent daughter
on their tax return. Their MAGI is $70,000. Their daughter is in her sophomore (second) year of studies at the local university.
Jon and Karen paid qualified education expenses of $4,300 in 2008.
Jon and Karen, their daughter, and the local university meet all of the requirements for the Hope credit. Jon and Karen can
claim a $1,800 Hope credit in 2008. This is 100% of the first $1,200 of qualified education expenses, plus 50% of the next
$1,200.
Form 1098-T.
To help you figure your Hope credit, you should receive Form 1098-T. Generally, an eligible educational institution
(such as a college or university) must send Form 1098-T to each enrolled student by February 2, 2009.
You claim the Hope credit by completing Parts I and III of Form 8863 and submitting it with your Form 1040 or 1040A. Enter the credit on Form 1040, line 50, or on Form 1040A, line 31.
Information for Only the Lifetime Learning Credit
For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in a Midwestern
disaster area) for qualified education expenses paid for all students enrolled in eligible educational institutions. There
is no limit on the number of years the lifetime learning credit can be claimed for each student.
Who Is an Eligible Student
For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an
eligible educational institution (as defined under
Qualified Education Expenses
, earlier.
The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible
students. The maximum amount of lifetime learning credit you can claim for 2008 is $2,000 (20% × $10,000). However, that amount
may be reduced based on your MAGI. See
Effect of the Amount of Your Income on the Amount of Your Credit
, earlier.
Example.
Bruce and Toni are married and file a joint tax return. For 2008, their MAGI is $75,000. Toni is attending a local college
(an eligible educational institution) to earn credits toward a degree in nursing. She already has a bachelor's degree in history
and wants to become a nurse. In August 2008, Toni paid $6,000 of qualified education expenses for her Fall 2008 semester.
Bruce and Toni can claim a $1,200 (20% × $6,000) lifetime learning credit on their 2008 joint tax return.
Students in Midwestern disaster areas.
For these students, the rate is modified to 40% of qualified expenses paid, with a maximum lifetime learning credit
allowed on your return of $4,000. If you are claiming a lifetime learning credit for both students in a Midwestern disaster
area and other students, the qualified education expenses taken into account for other students cannot exceed $10,000 reduced
by the qualified education expenses of the students in a Midwestern disaster area.
Form 1098-T.
To help you figure your lifetime learning credit, you should receive Form 1098-T. Generally, an eligible educational
institution (such as a college or university) must send Form 1098-T to each enrolled student by February 2, 2009.
You claim the lifetime learning credit by completing Parts II and III of Form 8863 and submitting it with your Form 1040 or 1040A. Enter the credit on Form 1040, line 50, or Form 1040A, line 31.
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