What are the Federal Education Tax Credits?
(Revised November 2012)

There are two individual credits for the cost of post-secondary education tuition and certain fees.

The modified Hope Credit (also called the American Opportunity Credit) - For years 2009 through 2012 the HOPE Credit was 'modified' to be far more generous than the old Hope Credit by making four significantly more generous changes:

  1. The maximum credit was increased from $1,800 to $2,500. This modified credit is 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000.
  2. The income limits of the credit phase-out were essentially doubled. The new phase-out ranges start at $80,000 ($160,000 for joint return filers).
  3. The new credit is not limited to just tuition and fees, but books and other course materials as well.

While the HOPE credit only applied to the first two years of college, the modified credit extends this period to the first four years. Finally, neither the HOPE credit or the modified credit can be used if the student was convicted of a felony drug offense.

Lifetime Learning Credit- For years starting with 2003, this credit is equal to 20% of the first $10,000 of eligible expense, or $2,000. For years prior to 2003, the maximum credit was equal to 20% of the first $5,000 or eligible expenses. Unlike the 'modified HOPE Credit' discussed above, this credit can be taken for non-degree courses that improve present job skills.  Also, prior drug convictions have no effect on this credit.

While the credits are often called 'college education credits', they will affect a lot more than college related education costs as tuition and related expenses at most of the vocational institutions (e.g. beautician school) will also qualify. If you or your child is now attending (or planning to attend) a post-secondary vocational school, you need to contact the school to find out if courses are eligible for the new credits.

Neither credit can be taken for expenses relating to room and board. In addition, the credits do not apply to any educational expenses that were paid by way of scholarships, grants and other non-taxable income sources. Both credits are elective and may overlap. When the credits overlap, you can only choose one credit for each student. The credits for  post-secondary educational tuition and fees are Federal credits only, and, as such, can only be taken on your Federal income tax return. There is also an Illinois tax credit for grammar and high school tuition.

The education credit can be taken on eligible expenses paid by the student and/or the spouse.  If someone else claims the student as a dependent, that individual can also claim the credit on eligible educational expenses that he/she, the spouse, or the student dependent paid. If a student is claimed as a dependent by somebody else, that student cannot claim the credit, even if he/she personally paid the expenses.

Finally, certain individuals will not be able to claim either of these educational credits:

  1. The credits phase out when income for the year exceeds $48,000 ($96,000 on a joint tax return).
  2. Neither credit can be claimed if the student received any distributions from an Educational IRA, unless he/she elects to pay tax on the distribution.
  3. If your filing status is married filing separately, you cannot take any credit.
  4. Anyone who has been convicted of a felony will be ineligible for either credit.

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