Tuition for Higher Education

There are two nonrefundable education tax credits available. One is the "Hope Credit" and the other is the "Lifetime Learning Credit." Also available is an "Above-the-Line Tuition and Fees Deduction." All of these are defined below.

The credits and deduction are allowed for you, your spouse, or your dependents. You can EITHER claim ONE of the credits OR the above-the-line deduction for each student, but NOT both the credit and above-the-line deduction. The amount of the credits and above-the-line deduction is determined by the amount you pay for "qualified educational expenses" for each student and the amount of your modified adjusted gross income (MAGI).

Qualified Educational Expenses Defined - These are tuition and fees required for enrollment or attendance at an accredited college, vocational school, or other post-secondary educational institution that is eligible to participate in the student aid programs administered by the Department of Education. Qualified expenses do NOT include room and board, insurance, transportation, or other similar personal, living, or family expenses. Qualified expenses may include fees for books, supplies, and equipment ONLY if the fee must be paid to the school for the student's enrollment or attendance. In addition, qualified expenses may include student activity fees if the fee must be paid to the school for the student's enrollment or attendance. Expenses do NOT include any costs for courses or instruction that involves sports, games, hobbies, or noncredit courses, unless the education is part of the student's degree program.

Expenses Paid By A Dependent - If you claim an exemption on your tax return for an eligible student, treat any expenses paid by the student as if you had paid them.

Adjustments to Qualified Educational Expenses - If you pay for higher education expenses with tax-free funds, you CANNOT claim a credit for those amounts. Some examples of tax-free funds are scholarships, Pell Grants, employer-provided education assistance, veterans' education assistance and any other nontaxable payments other than gifts, bequests, or inheritances.

The Hope Credit can only be claimed for an eligible student (defined below). This student can be you, your spouse, or your dependent. The maximum qualified tuition and related expenses that can be used per eligible student is $2,200. The maximum Hope Credit is $1,650 for each eligible student (100% of the first $1,100 of qualified tuition and related expenses and 50% of the next $1,100 of such expenses).

An ELIGIBLE STUDENT is a student who meets ALL of the following:

For tax year 2007, the Hope Credit is gradually reduced if your modified adjusted gross income (MAGI) exceeds $47,000 ($94,000 if married filing a joint return) and is completely eliminated if your MAGI exceeds $57,000 ($114,000 if married filing a joint return). The credit CANNOT be claimed if your filing status is "married filing separately," or if you were a nonresident alien for any part of the tax year and do not elect to be treated as a resident alien.

The Lifetime Learning Credit can only be claimed for an eligible student. This student can be you, your spouse, or your dependent. The credit is 20% of the FIRST $10,000 you pay for qualified tuition and related expenses for all eligible students. The maximum Lifetime Learning Credit you can claim on your tax return is $2,000 (20% of $10,000), no matter how many eligible students you are claiming. There is NO limit on the number of tax years for which the Lifetime Learning Credit can be claimed for each student.

The Lifetime Learning Credit is NOT based on the student's workload. It is allowed for one or more courses that the student takes as part of a degree program or to acquire or improve job skills. The credit is not limited to student's in the first two years of post-secondary education. Expenses for graduate level degree work are eligible.

For tax year 2007, the Lifetime Learning Credit is gradually reduced if your modified adjusted gross income (MAGI) exceeds $47,000 ($94,000 if married filing a joint return) and is completely eliminated if your MAGI exceeds $57,000 ($114,000 if married filing a joint return). The credit CANNOT be claimed if your filing status is "married filing separately," or if you were a nonresident alien for any part of the tax year and do not elect to be treated as a resident alien.

For tax year 2007, you may be able to deduct up to $4,000 for "qualified educational expenses" (defined above) paid for yourself, spouse, or dependent even if you do not itemize deductions on Schedule A.

If your modified adjusted gross income (MAGI) is GREATER than $65,000 ($130,000 if you are married filing jointly), but not more than $80,000 ($160,000 if you are married filing jointly), your maximum tuition and fees deduction will be $2,000. The "Above-the-Line Tuition and Fees Deduction" is eliminated if your MAGI exceeds $80,000 ($160,000 if married filing a joint return). The deduction CANNOT be claimed if your filing status is "married filing separately," or if you were a nonresident alien for any part of the tax year and do not elect to be treated as a resident alien. It also CANNOT be claimed if either the Hope or Lifetime Learning Credit is claimed for the same student in the same year.

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