American Opportunity Credit (Enhanced Hope Credit)
To help those who have gone back to school in a difficult economy, for 2010 Congress sweetened the Hope Credit by:
Congress also temporarily renamed the Hope Credit the American Opportunity Credit.
Eligible expenses include:
You can't include any expenses used to claim another education tax benefit. You also can't claim the American Opportunity Credit for a student for whom you claim the Lifetime Learning Credit.
Qualified students must:
This credit is equal to 20% of your family's qualifying education expenses. The expenses don't have to be work-related. You can count up to $10,000 of expenses annually.
Eligible students include:
For 2010, you can claim the credit only if your adjusted gross income (AGI) isn't more than $60,000 ($120,000 if you're married filing jointly).
Expenses that qualify:
Expenses that don't qualify:
You can't claim a Lifetime Learning Credit for a student for whom you claim the American Opportunity Credit.
See IRS Publication 970 to learn more.
| Comparing Education Credits | ||
| Amount of credit | ||
| American Opportunity Credit | Lifetime Learning Credit | |
| 100% of first $2,000 25% of next $2,000 Maximum credit $2,500 |
20% of first $10,000 Maximum credit $2,000 |
|
| Allowed for | First 4 years of post-secondary education Must be enrolled at least half time in a degree or certificate program |
Any qualified post-secondary education |
| MAGI phaseout | $80,000-$90,000 ($160,000-$180,000 if married filing jointly) |
$50,000-$60,000 ($100,000-$120,000 if married filing jointly) |
| Qualified expenses | Tuition, fees, related expenses, and required course materials |
Tuition, fees, and certain related expenses |
| Refundability | 40% refundable (up to $1,000) unless claimed by child subject to kiddie tax |
Not refundable |
The tuition and fees deduction expired at the end of 2009. Congress might extend it for 2010.
You can deduct up to $2,000 of your qualifying higher education expenses if your modified adjusted gross income (MAGI) is not more than $80,000 ($160,000 if married filing jointly).
MAGI is your adjusted gross income calculated excluding:
You can deduct up to $4,000 of your expenses if your MAGI is not more than $65,000 ($130,000 if married filing jointly). Expenses don't have to be work-related.
Expenses that qualify:
Expenses that don't qualify:
You can claim this deduction even if you don't itemize deductions. Consider claiming this deduction if your income is too high to claim the Lifetime Learning Credit.
See IRS Publication 970 and Form 8917 to learn more.
| Tuition and Fees Deduction | ||
| Amount of deduction |
Up to $4,000 of qualified expenses | |
| Allowed for | Any qualified post-secondary education | |
| MAGI phaseout | MAGI | Maximum deduction |
| Single, head of household, qualifying widow(er) |
$0-$65,000 $65,001-$80,000 |
$4,000 $2,000 |
| Married filing jointly | $0-$130,000 $130,001-$160,000 |
$4,000 $2,000 |
| Qualified expenses | Tuition, fees, and certain related expenses | |
If you're repaying 1 or more loans that were exclusively for qualified higher education expenses , you might be able to deduct up to $2,500 of loan interest. You can claim the deduction for 2010 if your AGI isn't more than $75,000 ($150,000 if you're married filing jointly).
Qualified students:
Unqualified students:
If you borrow money from a relative, you can't deduct any interest you pay that relative. Interest that's deductible under another provision of the tax law, like home mortgage interest, can't be deducted as student loan interest either.
If you take distributions from an IRA before you're 59 1 / 2, the taxable part is generally subject to a 10% penalty plus income tax. The penalty won't apply if the amount you take is less than your qualified higher education expenses for the year.
In this situation, qualified higher education expenses include expenses for you, your spouse, your children, and your grandchildren, including:
Don't include any expenses paid with nontaxable education reimbursement, like:
Use Form 5329 to show the amount of qualified IRA distributions.
If your education is considered work-related, you can deduct your expenses as a miscellaneous itemized deduction.
There's no dollar limit on the amount of your deduction.
Qualified expenses include:
Expenses are considered work-related if they:
Compare this deduction with your education credit or tuition and fees deduction to see which lowers your taxes the most.
If your employer participates in an eligible plan and reimburses you for your education expenses, up to $5,250 of the reimbursement won't be included in your taxable income.
The most you can exclude from your income per year under an educational assistance program is $5,250, no matter how many employers you had during the year. Reimbursement for courses that qualify for an employee business expense deduction generally aren't taxable even when the total reimbursement for the year is more than $5,250.
Your employer will include any taxable amounts in your wages on Form W-2.
Don't include any expenses for which you received another tax benefit (such as a credit, reimbursement, or deduction).
Income on distributions (payments you receive) from a QTP isn't subject to tax if the amount you withdraw isn't more than your qualified education expenses for the year.
Qualified education expenses include:
The amount of the distribution (and related earnings) will be reported to you on Form 1099-Q.
To figure the exclusion amount, subtract any expenses you used to claim another education benefit from your total amount of educational expenses.
The taxable part of a distribution (if any) is generally subject to a 10% penalty.
See Form 5329 for the computation of the penalty and exceptions and IRS Publication 970 to learn more.
Income on distributions from an ESA isn't subject to tax if the amount you withdraw isn't more than your qualified education expenses for the year. Qualified education expenses include:
K-12 and higher education expenses qualify as Coverdell ESA-eligible expenses. Also, you have to receive distributions before the student turns age 30.
To calculate the taxable portion of your Coverdell ESA distributions, subtract any expenses you used to claim other education tax benefits from your total education expenses.
The amount of the distribution (and related earnings) will be reported to you on Form 1099-Q. The taxable part of a distribution (if any) is generally subject to a 10% penalty.
See Form 5329 and instructions to learn about penalties and exceptions. See IRS Publication 970 to learn more.
If you claim an exemption for a dependent, you can claim a credit for expenses relating to their education expenses.
However, if your income is high enough that the credit is reduced or eliminated, consider letting your dependent claim the full credit.
Your dependent can claim the credit if you don't claim an exemption for them, even if you're eligible to do so. However, as your eligible dependent, your child still can't claim his or her exemption even if you choose not to claim it.
Scholarships you receive are sometimes taxable. A scholarship isn't taxable if:
If you meet these requirements, the following expenses are generally tax-free.
Expenses that don't qualify for exclusion (like room and board) are taxable income. Additionally, if you were required to perform services (such as working in a research lab) to receive the scholarship, the income you receive for your services is taxable as wages.