The Hope Scholarship is a tax credit, not a scholarship. Tax credits are subtracted from the tax your family owes, instead of subtracting them from taxable income like a tax deduction. Your family must file a federal tax return and owe taxes to get this tax credit. You cannot get a refund for the Hope Credit if your family doesn't pay taxes. If your family owes less in taxes than the maximum amount of the Hope Tax Credit for which your family is eligible, you can only take the credit for the amount you owe in taxes.
Your family may claim a tax credit up to $1,650 for each eligible dependent for up to two tax years. The Hope Credit is available only until the first two years of postsecondary education are complete.
The exact amount of the Hope Credit depends on your family's income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. The total credit is also based on how many eligible dependents are in your family, rather than a maximum dollar amount for the family, like the Lifetime Learning tax credit.
Fore more information refer publication 970
| Who may claim the Hope Scholarship Credit? |
An individual paying qualified tuition and related expenses at a postsecondary educational institution may claim the credit, provided the student whose expenses are being paid and the institution meet certain eligibility requirements.
You cannot claim a Hope credit if your Modified Adjusted Gross Income (MAGI) is $53,000 or more for a single taxpayer, or $107,000 or more for married taxpayers.
The credit amount is gradually reduced for families with incomes between $43,000 and $53,000 if single, or $87,000 and $107,000 if married.
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| Can I deduct the Hope Credit for college expenses on my tax return? |
With higher education costs climbing steadily upward nearly 8% per year many families are particularly concerned about accumulating enough money to put their children through college. College cost projections are continually increasing. Based on the latest averages from The College Board and recent average annual college cost increases, a child who entered kindergarten in 1995 will face four-year college costs of nearly $100,000 if he or she chooses to attend a public college in 2007. For a private college, costs will probably be double that.
The Hope Credit may be taken for qualified education expenses (i.e., tuition and fees, but not room and board or books) incurred during the first two years of a taxpayer's, spouse's, or dependent's post secondary undergraduate education.
You cannot claim the Hope Credit if you are subject to the phase out because of the amount of your income. The Hope Credit is phased out as modified AGI raises from $87,000 to $107,000 for joint IRS tax return filers ($43,000 to $53,000 for single tax filers).
An eligible student must meet the following requirements to deduct the Hope Credit:
- be enrolled in one of the first two years of post secondary education;
- be enrolled in a program that leads to a degree, certificate, or other recognized educational credential;
- be taking at least half of the normal full time work load for his/her course of study for at least one academic period beginning during the calendar year;
- Not have a felony conviction for possessing or distributing a controlled substance.
The Hope Credit is nonrefundable and is available for up to 100% of the first $1,000 and 50% of the second $1,000 of qualified tuition and related expenses paid during a taxable year. If either the Lifetime Learning Credit or the education income exclusion for withdrawals from an Education IRA is elected the Hope Credit may not be taken on your tax return.
In the case of a dependent, if either the Hope Credit or the Lifetime Learning Credit is claimed by a taxpayer other than the student (e.g., a parent), the dependent student may not claim the Hope Credit, and the taxpayer is treated as paying all eligible expenses for the tax year for Hope Credit purposes. The maximum annual Hope Credit is $1,500.
As an alternative to the Hope Credit, eligible taxpayers may elect to exclude from taxable income amounts withdrawn from Education IRAs that are used to pay the taxpayer's, spouse's, or dependent's qualified education expenses. The income exclusion is not available in any tax year that a Hope Credit or Lifetime Learning Credit is elected with respect to a student.
Figure your Hope Credit on Form 8863. |
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