EDUCATIONAL EXPENSES
I’m working my way through college, and I’ve taken a few classes at the local community college. Do I qualify for any tax breaks?
You may qualify for the Hope Scholarship Tax Credit. Available since Jan. 1, 1998, the Hope Credit equals 100 percent of the first $1,000 paid for qualified tuition and fees, plus 50 percent of the next $1,000, for a maximum tax credit of $1,500 per year. The Hope Credit is available to eligible students in the first two years of college or vocational school.
To be eligible, the student must carry at least one-half the normal full-time workload for the course of study he or she is pursuing. Charges associated with room, board, books, equipment, or living expenses are not eligible.
For 2006, the Hope Credit is gradually phased out for joint filers who have between $90,000 and $110,000 of adjusted gross income (AGI) and for single filers who have between $43,000 and $53,000 of AGI. Married taxpayers must file jointly to claim the credit.
My husband is in graduate school. How do we use the Lifetime Learning Credit?
The less restrictive Lifetime Learning Credit lives up to its name. It targets not only college, graduate, and professional students, but also adults going back to school or taking courses to improve or update their skills. Students do not have to carry a minimum course load to be eligible, and there is no limit on the number of years the credit can be used.
For 2006, a family could claim a 20 percent tax credit for the first $10,000 of qualified tuition and fees. This makes the maximum Lifetime Learning Credit $2,000 per return. Unlike the Hope Credit, the top Lifetime Learning Credit is determined on a family basis. Regardless of how many family members are taking courses, the maximum credit is $2,000.
My wife is going to law school part-time at night, and my son is in his first year at Texas Tech. Can I take both the Lifetime Learning Credit and the Hope Scholarship Credit this year?
You can take both the Hope and Lifetime Learning Credits in the same year if your wife qualifies for the Lifetime Learning Credit and your son qualifies for the Hope Scholarship Credit. You cannot take both the Hope and Lifetime Learning Credits for the same student in the same tax year. However, you now can take the Hope and Lifetime Learning Credits in the same year that you take a distribution from an Education IRA or make a tax-free withdrawal from a state-sponsored Section 529 plan. Just be sure that the distribution isn’t used for the same expenses for which the credit is claimed.
Our family makes too much money to qualify for either the Lifetime Learning Credit or the Hope Scholarship Tax Credit, but we have two kids in college. Are there any tax deductions out there for taxpayers like us?
Taxpayers with incomes too high to benefit from the Hope or Lifetime Learning Credits may be able to take advantage of the tuition and fees deduction. For 2006, you qualify for the maximum deduction of $4,000 if your modified adjusted gross income (MAGI) is not more than $65,000 for single filers and $130,000 for married taxpayers filing jointly. If you’re a single filer and your MAGI is more than $65,000 but not more than $80,000, your deduction is limited to $2,000. The $2,000 deduction also applies to joint filers whose MAGI is higher than $130,000, but not more than $160,000.
No tuition and fees deduction is allowed if your MAGI exceeds $80,000 for single filers and $160,000 for joint filers.
The $4,000 is the annual maximum, regardless of how many students in your family qualify. The tuition deduction may be claimed whether or not you itemize your deductions.
Please note: this provision originally expired at the end of the 2005 tax year. Congress extended the deduction after the IRS had already printed its tax forms so there are special instructions on how to claim this deduction.
According to the IRS, you must file Form 1040 to take this deduction. The deduction is claimed on Form 1040, line 35, “Domestic production activities deduction.” Enter "T" on the line to the left of that line entry if claiming the deduction for tuition and fees, or "B" if claiming both a deduction for domestic production activities and the deduction for tuition and fees. For those entering "B," you must attach a statement with a breakdown of the amount claimed for each deduction.
Education
