Hope and Lifetime Learning Tax Credits

ALL HOPE AND LIFETIME LEARNING AMOUNTS REPORTED ON THE 1098-T ARE BEING REPORTED BASED ON QUALIFIED EXPENSES AND SCHOLARSHIPS THAT WERE BILLED DURING THE CALENDAR YEAR.  

The Hope Scholarship Tax Credit is a tax credit equal to 100% of the 1st $1,000 of a student's qualified educational expenses plus 50% of the next $1,000. The maximum credit is $1,500 per student in each of the first two years of a postsecondary degree program. The maximum credit will increase for inflation after 2001. Students must be enrolled at least halftime during at least one academic period that begins during a tax year and cannot have had a drug felony conviction in a year that the credit applies.

The Lifetime Learning Credit applies to qualified tuition and fees for undergraduate, graduate, and continuing education course work at an eligible education institution. A taxpayer can claim a credit equal to 20% of $10,000 of qualified educational expenses paid for the taxpayer, his or her spouse, or dependent children. The maximum credit is $2,000 per family per year.

Limitations related to both tax credits:

• The Hope and Lifetime Learning Credits cannot both be claimed for the same student in the same tax year. The taxpayer may claim both credits on one tax return (for different students) but must choose which credit to claim for each individual. These credits may not be combined with tax-free withdrawals from education IRA's.

• Scholarships, grants, and other tax-free tuition benefits offset eligible education expenses.

• The full value of both education tax credits is available to married taxpayers filing jointly with an adjusted gross income (AGI) of $85,000 or less and to single taxpayers with an AGI of $42,000 or less. The tax credits phase out gradually. Once married taxpayers' AGI exceeds $105,000 or single taxpayers' AGI exceeds $52,000, they are not eligible for these credits. The income limits will be adjusted for inflation after 2001.

• A student who is claimed as a dependent on another taxpayer's return may not claim a tax credit on his or her own tax return. The credit will be claimed on the return of the taxpayer claiming the student as a dependent.

• Married taxpayers must file a joint return.