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taxmap/pubs/p970-003.htm#TXMP32310e2a Chapter 2 Hope Credit(p8)

Credit Hope

taxmap/pubs/p970-003.htm#TXMP60b5efb7 What's New(p8)

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Income limits increased.(p8)

The amount of your Hope credit for 2007 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $47,000 and $57,000 ($94,000 and $114,000 if you file a joint return). You cannot claim a credit if your MAGI is $57,000 or more ($114,000 or more if you file a joint return). This is an increase from the 2006 limits of $45,000 and $55,000 ($90,000 and $110,000 if filing a joint return). See Effect of the Amount of Your Income on the Amount of Your Credit, later, for more information.

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Introduction

There are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the Hope credit and the lifetime learning credit, also referred to as education credits. This chapter discusses the Hope credit. The lifetime learning credit is discussed in chapter 3.

This chapter explains:

• Who can claim the Hope credit,
• What expenses qualify for the credit,
• Who is an eligible student,
• Who can claim a dependent's expenses,
• How to figure the credit,
• How to claim the credit, and
• When the credit must be repaid.

taxmap/pubs/p970-003.htm#TXMP7231d171 What is the tax benefit of the Hope credit.(p8)

For the tax year, you may be able to claim a Hope credit of up to $1,650 for qualified education expenses paid for each eligible student.

A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The Hope credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you.

The Hope credit you are allowed may be limited by the amount of your income and the amount of your tax.

You may be able to take a tuition and fees deduction for your education expenses instead of a Hope credit. You can choose the one that will give you the lower tax. See chapter 6 for details about the deduction.

taxmap/pubs/p970-003.htm#TXMP0acdedc8 Can you claim both education credits this year.(p8)

For each student, you can elect for any year only one of the credits. For example, if you elect to take the Hope credit for a child on your 2007 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2007.

If you are eligible to claim the Hope credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. For 2007, if the total qualified education expenses for a student are less than $8,250, it will generally be to your benefit to claim the Hope credit.

If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the Hope credit for one student and the lifetime learning credit for another student in the same year.

taxmap/pubs/p970-003.htm#TXMP0b8f5b50 Differences between the Hope and lifetime learning credits.(p8)

There are several differences between these two credits. For example, you can claim the Hope credit based on the same student's expenses for no more than 2 years. However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. The differences between the two credits are summarized in Table 2-1.

taxmap/pubs/p970-003.htm#TXMP40717bd5 Can You Claim the Credit(p8)

The following rules will help you determine if you are eligible to claim the Hope credit on your tax return.

taxmap/pubs/p970-003.htm#TXMP2b2b1095 Who Can Claim the Credit(p8)

Generally, you can claim the Hope credit if all three of the following requirements are met.

• You pay qualified education expenses of higher education.
• You pay the education expenses for an eligible student.
• The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.

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Note.Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you.

"Qualified education expenses" are defined below under What Expenses Qualify. "Eligible students" are defined later under Who Is an Eligible Student. A "dependent for whom you claim an exemption" is defined later under Who Can Claim a Dependent's Expenses.

You may find Figure 2-1, on the next page, helpful in determining if you can claim a Hope credit on your tax return.

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Figure 2-1 Can you claim the Hope credit for 2007?  

taxmap/pubs/p970-003.htm#TXMP7d82817a Who Cannot Claim the Credit(p9)

You cannot claim the Hope credit for 2007 if any of the following apply.

• Your filing status is married filing separately.
• You are listed as a dependent in the Exemptions section on another person's tax return (such as your parents'). See Who Can Claim a Dependent's Expenses, later.
• Your modified adjusted gross income (MAGI) is $57,000 or more ($114,000 or more in the case of a joint return). MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit.
• You (or your spouse) were a nonresident alien for any part of 2007 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.
• You claim the lifetime learning credit or a tuition and fees deduction for the same student in 2007.

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