Student tax credit

Three tax credits you need to be aware of as a student

WRITTEN BY: Janelle Vreeland
Student tax credit

Let's face it: higher education ccan be very expensive. Esepcially when you don't have a full-time job to combat the expenses. Student tax credits may be few in number, but they do exist and they can cover many expenses. As IRS.gov details, student tax credits can be used to offset tuition and related expenses required for enrollment or attendance at an eligible educational institution. These student tax credits, in general, do not cover room and board, athletics (unless part of degree program), activity fees (unless required for enrollment or attendance), insurance or transportation. Also, generally, student tax credits do not cover the cost of books, but in 2009 and 2010 the Hope Credit was modified to includ course material.

To ensure that you get the most for your money, and the most tax credits possible, read through the following student tax credits to see which ones you qualify for.

The Hope student tax credit

As the IRS states, generally you can claim the Hope student tax credit if you meet the following criteria:

  • You pay qualified tuition and related expenses for the first 2 years of postsecondary education.
  • You pay the tuition and related expenses for an eligible student.
  • The eligible student is you, your spouse, or a dependent for whom you claim an exemption on your tax return.

In order to be eligible for the Hope student tax credit you must:

  • Not have had expenses that were used to figure a Hope Credit in any 2 earlier tax years.
  • Not have completed the first 2 years of postsecondary education (generally, the freshman and sophomore years of college) before this tax year.
  • Must have been enrolled at least half-time in a program that leads to a degree, certificate, or other recognized educational credential for at least one academic period beginning in the tax year.
  • Must have been free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

You can not, however, claim the Hope student tax credit if you fall under any of the following:

  • Your filing status is married filing separately.
  • You are listed as a dependent in the Exemptions section of another person's tax return (such as your parents').
  • Your modified adjusted gross income can not be above a certain dollar limitation.
  • You (or your spouse) were a nonresident alien for any part of the tax year, and the nonresident alien did not elect to be treated as a resident alien for tax purposes. (For additional information, refer to Publication 519, U.S. Tax Guide for Aliens).
  • You claim the Lifetime Learning Credit for the same student in the same year.

The American Opportunity student tax credit

This expanded on and renamed the Hope Credit. As the IRS details, this is what you should knwo about this student tax credit:

  • This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course Materials.
  • The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000 per student each year. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
  • The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
  • Forty percent of the student tax credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
  • The student tax credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
  • You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity student tax credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction, which ever is more beneficial for you.

The Lifetime Learning student tax credit

The IRS details, "An individual paying qualified tuition and related expenses at a postsecondary educational institution may claim this student tax credit, provided the institution is an eligible educational institution. Unlike the Hope Scholarship Credit, students are not required to be enrolled at least half-time in one of the first two years of postsecondary education. Nonresident aliens generally are not eligible to claim the Lifetime Learning Credit. Unlike the Hope Scholarship Credit, there is no limit to the number of years in which a Lifetime Learning Credit may be claimed for each student. Thus, for example, an individual who enrolls in one college-level class every year would be able to claim the Lifetime Learning Credit for an unlimited number of years, provided the individual meets the income limits and is taking the classes at institutions that meet the eligibility requirements."

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