Financial

The Hope Scholarship credit and Lifetime Learning credit can

soften the tuition blow

by Cary G. Jones

The Hope Scholarship credit and the Lifetime Learning credit for "qualified tuition and related expenses" can turn part of your higher education expenses into tax savings.

The Hope Scholarship provides families with a tax credit of up to $1,500 per student for each of the first two years of undergraduate education at an eligible education institution (based upon 100 percent of the first $1,000 of qualified tuition expenses and 50 percent of the next $1,000).

The Lifetime Learning credit provides up to $1,000 per taxpayer for each year of post-secondary education (based upon 20 percent of the first $5,000 of qualified tuition and related expenses).

In contrast to the Hope Scholarship credit, taxpayers may claim the Lifetime Learning credit for an unlimited number of years.

Also in contrast to the Hope Scholarship credit, which is limited to $1,500 per student annually, the Lifetime Learning credit is limited to $1,000 per taxpayer annually, regardless of the number of students.

The tax credits may be claimed for qualified tuition and related expenses (not including the cost of books, student activity fees, athletic fees, insurance expenses, room and board, transportation costs and other personal living expenses) paid for the taxpayer, their spouse or a person claimed as a dependent of the taxpayer in the year a credit is claimed.

For purposes of the credit, any qualified tuition and related expenses paid by a dependent student are deemed paid by the taxpayer (e.g., the parents). Expenses paid with a student loan are eligible for the credit, but those paid by qualified scholarships are not.

Effective dates.

The Hope credit is available for expenses paid after 1997 for education furnished in academic periods starting on or after Jan. 1, 1998. To claim the Hope credit, students must be enrolled in a degree or certificate program on at least a half-time basis at an eligible education institution, and the student must never have been convicted of a federal or state felony drug offense.

The Lifetime Learning credit is available for expenses paid after June 30, 1998, for education furnished in semesters starting after that date. The half-time student and felony drug offense restrictions do not apply to the Lifetime Learning credit. Therefore, the Lifetime Learning credit is available with respect to any qualifying course at eligible educational institutions to acquire or improve job skills.

Limitations for "high-income" individuals.

Both the Hope credit and the Lifetime Learning credit are phased out ratably for married taxpayers filing jointly with modified adjusted gross income between $80,000 and $100,000.

That is, the credit is reduced if the modified AGI is above $80,000 and is unavailable if it's $100,000 or more. For taxpayers who aren't married filing jointly, the phase-out range is $40,000 to $50,000. No credit is allowed for married persons filing separately.

Summary.

The Hope Scholarship credit and Lifetime Learning credit provide tax credits of up to $1,500 or $1,000 annually. While the Hope and Lifetime Learning credit may not be claimed in the same tax year for the same expenses, each may be claimed for different expenses.

For example, you may claim the Hope credit for the qualified tuition and related expenses of your dependent child, and still claim the Lifetime Learning credit for the qualified tuition and related expenses incurred for yourself.

So, whether you or one of your children is currently attending college or preparing to enroll, keep these credits in mind when doing your tax planning. They could turn college expenses into tax savings.

(Cary Jones is a CPA and senior manager with the Springfield office of Baird, Kurtz & Dobson, certified public accountants.)

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