Four Major Differences Between the Hope and Lifetime Learning Tax Credits
The Hope credit provides a maximum non-refundable tax credit of $1,650 per student for the first two years of post-secondary education. The Hope credit may be limited by your income and amount of tax and again, only one education credit may be claimed for a student.
Example of differences, the taxpayer can claim the Hope credit for no more then 2 years for the same student, however, there is no limit on the number of years you can use the Lifetime Learning Credit for the same student.
The second major difference is, when using the Hope Credit, the student must be pursuing an undergraduate degree or a recognized credential. The Lifetime Learning Credit does not require the student to pursue a degree or educational credential.
The third major difference applies to the time a student is enrolled in school. With the Hope Credit, a student must be enrolled at least half time for at least one academic period during the year. The Life Time Learning Credit is available for one or more courses.
The fourth difference, that many people, including tax professionals, are not aware of is, the Hope Credit can not be claimed by a student who has a felony drug conviction on his/her record. With the Lifetime Learning Credit, the felony drug conviction rule does not apply.
Who Can Claim a Dependent's Educational Expenses?
A taxpayer or his dependent, but not both can claim a Lifetime Learning Credit for educational expenses. For the taxpayer to claim a Lifetime Learning Credit for his dependent's expenses, he must also claim the student as his dependent. (Visit: http://www.irs.gov for more information)
What Educational Expenses Qualify for Deductions?
Qualified education expenses include tuition and certain expenses required for enrollment at an eligible educational institution. An eligible educational institution is any college, university, vocational school or other postsecondary school who is eligible to receive student aid from the Department of Education.
Student activity fees, course related books, supplies and equipment are also included as legal expenses (some restrictions apply)
Expenses that don't qualify for educational expenses are insurance, medical expenses, room and board, transportation or personal living expenses.
Can Colleges Outside of the US Qualify for Expenses?
Certain colleges outside of the US participate in the Department of Education's Federal Student Aid (FSA) programs, and qualify for educational expenses on US tax returns.
You can find a list of foreign schools who meet the FSA's guidelines at http://www.fafsa.ed.gov/index.htm
Additional Notes on Educational Credit
Even if tuition fees are paid with borrowed funds - the taxpayer can claim the deductions in the year that the expenses were paid, not the year that the loan is repaid. (Consult with your tax professional for more information)
If a taxpayer pays qualified expenses with certain tax-free funds, they cannot claim a deduction for those amounts. (Consult with a tax professional for further clarification)
For clarification, seek advice from your Tax Professional, Tax Attorney or visit the Internal Revenue web site.
Contact your Tax Professional is just another way of saying, that Tax Attornies, Enrolled Agents and CPAs, often differ in how they view a Tax Code. Because your Tax Professional is the person you would go to, if the IRS has questions, you want to consult them, before making certain tax decisions.
Cassandra Ingraham is a Tax Accountant and founder of Taxes Will Travel.com, an online service that helps taxpayer's file their back taxes, even if they don't have their W2s or 1099s. You can visit: http://www.taxeswilltravel.com for more information.