February 2010

College Tuition Credits
By Terry Schleucher

         The federal government offers parents and students two tuition tax credit programs, Hope/American Opportunity and Lifetime Learning, to help pay for higher education costs. You may be able to claim an education credit if you, your spouse, or a dependent claimed on your tax return attended an eligible educational institution. The credits are based on the amount of qualified education expenses paid for the student. However, you may not claim both the Hope/American Opportunity and the Lifetime credit for the same student in the same year.

American Opportunity/Hope Tax Credit

         With the passage of the American Recovery and Reinvestment Act of 2009, Congress modified the existing Hope tax credit, now called the American Opportunity Credit. This modified credit is available for 2009 and 2010 with a maximum credit per student of $2,500. Qualified expenses were expanded to include course materials. The credit is available for the first 4 years of postsecondary education and 40% of the credit (up to $1,000) is refundable for many taxpayers. The amount of the credit for 2009 is gradually reduced if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). Taxpayers with MAGI greater than $90,000 ($180,000) do not qualify.

         In coordination with Midwestern disaster area benefits, an expanded Hope credit applies to individuals who attend an eligible educational institution located in a Midwestern disaster area and choose not to claim the American Opportunity credit for the student in 2009. If a taxpayer is eligible for this expanded Hope credit the taxpayer may receive a maximum credit per student of $3,600.

Lifetime Learning Credit

         This credit is available for all years of postsecondary education and for courses to acquire or improve job skills. The credit equals 20% of qualified expenses paid, up to a maximum of $10,000 of qualified expenses per return. Therefore, the maximum credit you can claim on your return for the year is $2,000, regardless of the number of students for whom you are claiming the credit. For students in Midwestern disaster areas, the rate is modified to 40% of qualified expenses paid, with a maximum credit allowed of $4,000. The amount of the credit for 2009 is gradually reduced if your MAGI is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return). Taxpayers with MAGI greater than $60,000 ($120,000) do not qualify.

          There are a number of factors, such as your filing status, your adjusted gross income, whether you are subject to the alternative minimum tax, and whether you received any tax-free educational assistance, which will affect the amount of any education credit you are eligible to claim. Please contact our office for further information.