Summary of Federal Laws
Tax Issues Related to Students
Tax Credits and Tax Deductions
26 U.S.C. §25A
The HOPE Scholarship Credit is one of two income tax credits for qualified tuition and related expenses added by the Taxpayer Relief Act of 1997. The HOPE Scholarship Credit may be elected for qualified education expenses incurred during the first two years of a taxpayer's, spouse's, or dependent's post-secondary education. Certain income limits apply. The amount of the credit is determined by using Form 8863, Education Credits. The form takes into account the amount of qualified tuition and related expenses paid per eligible student, and the amount of the taxpayer's Modified Adjusted Gross Income. The Hope Credit cannot be claimed by someone who is listed as a dependent on another person's tax return.
For tax years 2009-2010, the American Opportunity Credit modified the Hope Credit so that the maximum is increased to $2,500, the credit can be claimed for the first four years of Postsecondary Education, the MAGI limitations are increased, qualified expenses include course materials, and generally 40% of the Hope Credit is now refundable.
The Lifetime Learning Credit is a tax credit available for qualified tuition and related expenses incurred at any time. As of tax year 2009, a credit of up to $2,000 per year (and $4,000 for students in Midwestern disaster areas for 2009-2010) may be able to be claimed. The IRS web page on the Lifetime Learning Credit spells out the conditions and expenses that do and do not qualify. The credit is family based rather than based on number of students in the family. You cannot claim the credit if your modified adjusted gross income is $60,000 or more for a single taxpayer or $120,000 or more for married taxpayers filing jointly.
For those who do not qualify for one of the above, there is tuition and fees deduction that might be available. See Form 8917.
Other tax benefits for education are spelled out in Publication 970.
Publication 8863 Education Credits (American Opportunity, Hope and Lifetime Learning Credits)
Tax Benefits for Higher Education (IRS Publication 970)
Form 8917 Tuition and Fees Deduction 2009
CCR updated CFR links 7/10/15