The Hope Credit: Federal Tax Credit for Students
The Hope Credit is one of two federal tax credits that allow students to get money back on their college expenses from the government at income tax time.
Attention, please! The Hope Credit is replaced by the American Opportunity Tax Credit for 2009 and 2010 Tax Returns
The 2009 Economic Stimulus Bill (American Recovery and Reinvestment Act of 2009) upgraded the Hope Credit with a new name and a bigger tax break for higher education expenses. The new name is the American Opportunity Tax Credit. Go here to learn about this new federal tax credit.
Hope Credit Education Qualifications
To claim the Hope tax credit, the student must be:
- in the first or second year of school,
- in an undergraduate program that will result in a degree, certificate, or other recognized education credential, and
- enrolled at least half-time for at least one academic period during the tax year— in this case, 2008.
Definition of "Student" for the Hope Tax Credit
The student can be you, your spouse, or a dependent you claim as an exemption on your tax return.
Hope Credit Amount
The maximum Hope Credit for 2008 is $1,800 per each eligible student per year, but only during the first two years of college or vocational school. There is no limit to the number of students in one family who can claim a Hope credit. (Note: For students in certain Midwestern disaster areas, the credit is $3,600 per student. Designated Midwestern disaster areas include counties in Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin.)
Not Everyone Can Get the Maximum Hope Tax Credit
The Hope Credit is reserved for taxpayers whose Modified Adjusted Gross Income (MAGI) is $58,000 or less ($116,000 or less for joint filers). The credit is reduced on a sliding scale for MAGIs between $48,000 and $58,000. Also, this credit is nonrefundable, which means that it can reduce the income tax you owe to zero, but if the credit turns out to be more than all the tax owed, you don't get the difference refunded to you.
How the Hope Credit is Calculated
If you're a student on a single-filer tax return for a MAGI under $48,000, the filer can claim a $1,200 credit for the first $1,200 of qualified education expenses and $600 credit for the next $1,200. For a MAGI between $48,000 and $58,000, there are instructions on the IRS form for figuring out the correct sliding-scale credit. "Qualified expenses" include tuition, fees, and certain other education costs.
How to Get the Hope Credit
You claim the Hope credit by completing Parts I and III of Form 8863 and submitting it with the tax return filer's Form 1040 or 1040A. The filer can be you, your spouse if you file jointly, or your parent if you're being claimed as a dependent.
Comparing the Hope Credit and the Lifetime Learning Credit
| Hope Credit | Lifetime Learning Credit |
|---|---|
| Up to $1,800 credit per eligible student per year | Up to $2,000 credit per tax return |
| Can only be used for the first 2 years of college or vocational school | Available for all years of postsecondary education and for courses to acquire or improve job skills |
| No more than a total of 2 years per eligible student | Available for an unlimited number of years |
| Student must be pursuing an undergraduate degree or other recognized education credential | Student does not need to be pursuing a degree or other recognized education credential |
| Student must be enrolled at least half time for at least one academic period beginning during the year | Enrollment in at least one course qualifies for the credit |
| No felony drug conviction on student's record | Felony drug conviction rule does not apply |
Source: U.S. Internal Revenue Service, IRS online
Please note: This article is intended to be a general overview of education tax benefits for the tax year 2008. Course Advisor Inc. and CourseAdvisor.com do not advise on any personal income tax requirements or issues. Use of any information from this web site is for general information only and does not represent personal tax advice either express or implied. You are encouraged to visit the IRS website for more information and to seek professional tax advice for personal income tax questions and assistance.