Publication 970 |
2008 Tax Year |
Publication 970 - Additional Material
The following appendices are provided to help you claim the education benefits that will give you the lowest tax.
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Appendix A—An Illustrated Example of Education Credits including a filled-in Form 8863 showing how to claim both the Hope credit and lifetime learning credit for 2008.
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Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. It is
intended only as a guide. Look in this publication for more complete information.
Appendix A. Illustrated Example of Education Credits
Dave and Valerie Jones are married and file a joint tax return. For 2008, they claim exemptions for their two dependent children
on their tax return. Their modified adjusted gross income is $99,000. Their tax, before credits, is $11,219. Their son, Sean,
will receive his bachelor's degree in psychology from the state college in May 2009. Their daughter, Corey, enrolled full-time
at that same college in August 2007 to begin working on her bachelor's degree in physical education. In July 2008, Dave and
Valerie paid $2,400 in tuition costs for each child for the Fall 2008 semester. In December 2008, they also paid $2,600 of
tuition for each child for the Spring 2009 semester that begins in January.
Dave and Valerie, their children, and the college meet all of the require-ments for the education credits. Because Sean is
beyond the second (sophomore) year of his postsec- ondary education, his expenses do not qualify for the Hope credit. But,
amounts paid for Sean's expenses in 2009 for academic periods beginning in 2008 and the first 3 months of 2009 qualify for
the lifetime learning credit. Corey is in her first 2 (freshman and sophomore) years of postsecondary education and expenses
paid for her in 2008, for academic periods beginning in 2008 and January 2009, qualify for the Hope credit.
Dave and Valerie figure their tentative education credits for 2008, $2,760, as shown in the completed Form 8863. They cannot
claim the full amount because their modified adjusted gross income is more than $96,000. They carry the amount from line 17
of Form 8863, $2,346, to line 50 of Form 1040, and they attach the Form 8863 to their return.
Appendix B.Highlights of Education Tax Benefits for Tax Year 2008
This chart highlights some differences among the benefits discussed in this publication. See the text for definitions and
details.Do not rely on this chart alone.
Caution:You generally cannot claim more than one benefit for the same education expense.
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Scholarships, Fellowships, Grants, and Tuition Reductions
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Hope Credit |
Lifetime Learning Credit |
Student Loan Interest Deduction |
Tuition and Fees Deduction |
What is your benefit?
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Amounts received may not be taxable
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Credits can reduce amount of tax you must pay |
Can deduct interest paid |
Can deduct expenses |
What is the annual limit? |
None |
$1,800 credit ($3,600 if a student in a Midwestern disaster area) per student
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$2,000 credit ($4,000 if a student in a Midwestern disaster area) per family
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$2,500 deduction |
$4,000 deduction |
What expenses qualify besides tuition and required enrollment fees?
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Course-related expenses such as fees, books, supplies, and equipment |
None (but see
Students in Midwestern disaster areas
under Qualified Education Expenses in chapter 2 for an exception)
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None (but see
Students in Midwestern disaster areas
under Qualified Education Expenses in chapter 3 for an exception)
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Books Supplies Equipment
Room & board
Transportation
Other necessary expenses
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None (but see
Students in Midwestern disaster areas
under Qualified Education Expenses in chapter 6 for an exception)
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What education qualifies? |
Undergraduate & graduate
K–12
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1st 2 years of undergraduate (postsecondary) |
Undergraduate & graduate
Courses to acquire or improve job skills
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Undergraduate & graduate |
Undergraduate & graduate |
What are some of the other conditions that apply?
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Must be in degree or vocational program
Payment of tuition and required fees must be allowed under the grant
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Can be claimed for only 2 tax years
Must be enrolled at least half-time in degree program
No felony drug conviction(s)
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No other conditions |
Must have been at least half-time student in degree program
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Cannot claim both deduction & education credit for same student in same year
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In what income range do benefits phase out?
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No phaseout |
$48,000 – $58,000
$96,000 – $116,000 for joint returns
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$55,000 – $70,000
$115,000 – $145,000 for joint returns
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$65,000 – $80,000
$130,000 – $160,000 for joint returns
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Appendix B.(Continued)
This chart highlights some differences among the benefits discussed in this publication. See the text for definitions and
details.Do not rely on this chart alone.
Caution:You generally cannot claim more than one benefit for the same education expense.
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Coverdell ESA† |
Qualified Tuition Program (QTP)† |
Education Exception to Additional Tax on Early IRA Distributions† |
Education Savings Bond Program† |
Employer- Provided Educational Assistance† |
Business Deduction for Work-Related Education |
What is your benefit? |
Earnings not taxed
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Earnings not taxed |
No 10% additional tax on early distribution
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Interest not taxed |
Employer benefits not taxed |
Can deduct expenses |
What is the annual limit? |
$2,000 contribution per beneficiary |
None |
Amount of qualified education expenses
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Amount of qualified education expenses
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$5,250 exclusion |
Amount of qualifying work-related education expenses |
What expenses qualify besides tuition and required enrollment fees? |
Books Supplies Equipment
Expenses for special needs services
Payments to QTP
Higher education: Room & board if at least half-time student
Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer access Supplementary expenses
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Books Supplies Equipment
Room & board if at least half-time student
Expenses for special needs services
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Books Supplies Equipment
Room & board if at least half-time student
Expenses for special needs services
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Payments to Coverdell ESA
Payments to QTP
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Books Supplies Equipment
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Transportation
Travel
Other necessary expenses
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What education qualifies? |
Undergraduate & graduate
K–12
|
Undergraduate & graduate |
Undergraduate & graduate |
Undergraduate & graduate |
Undergraduate & graduate |
Required by employer or law to keep present job, salary, status
Maintain or improve job skills
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What are some of the other conditions that apply? |
Assets must be distributed at age 30 unless special needs beneficiary
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No other conditions |
No other conditions |
Applies only to qualified series EE bonds issued after 1989 or series I bonds
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No other conditions |
Cannot be to meet minimum educational requirements of present trade/business
Cannot qualify you for new trade/business
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In what income range do benefits phase out? |
$95,000 – $110,000
$190,000 – $220,000 for joint returns
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No phaseout |
No phaseout |
$67,100 – $82,100
$100,650 – $130,650 for joint and qualifying widow(er) returns
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No phaseout |
May be subject to limit on itemized deductions |
The education benefits included in this publication were enacted over many years, leading to a number of common terms being
defined differently from one benefit to the next. For example, an eligible educational institution means one thing when determining
if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship
or fellowship is not taxable.
For each term listed below that has more than one definition, the definition for each education benefit is listed.
Academic period:
A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined
by an educational institution. If an educational institution uses credit hours or clock hours and does not have academic terms,
each payment period can be treated as an academic period.
Adjusted qualified education expenses (AQEE):
Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship
or employer-provided educational assistance. They must also be reduced by any qualified education expenses deducted elsewhere
on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. For
information on a specific benefit, see the appropriate chapter in this publication.
Candidate for a degree:
A student who meets either of the following requirements.
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Attends a primary or secondary school or pursues a degree at a college or university, or
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Attends an accredited educational institution that is authorized to provide:
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A program that is acceptable for full credit toward a bachelor's or higher degree, or
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A program of training to prepare students for gainful employment in a recognized occupation.
Designated beneficiary:
The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan.
Eligible educational institution:
Half-time student:
A student who is enrolled for at least half the full-time academic work load for the course of study the student is
pursuing, as determined under the standards of the school where the student is enrolled.
Modified adjusted gross income (MAGI):
Phaseout:
The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a
specified amount of income.
Qualified education expenses:
See pertinent chapter for specific items.
Recapture:
To include as income on your current year's return an amount allowed as a credit or deduction in a prior year.
Rollover:
A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored
plan.
Transfer:
A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's
request.
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