Hope and Lifetime Learning Credits
What are the Hope and Lifetime Learning education credits, who
is eligible, and why should we take them? Well, let's start with
the first part of the question, and work our way to the end.
Education credits are tax credits available for qualified
education expenses paid by the taxpayer in the furthering of
their education. Qualified education expenses are defined as an
expense paid during the tax year for tuition and fees required
by an eligible educational institution for student enrollment
and attendance. It really doesn't matter how you pay these
expenses, only that the expenses are valid. Now, let's give some
examples of expenses that are not qualified so that you can
determine those that are qualified, and how you account for
these expenses. Room and board, medical expenses, student health
fees, transportation, personal living expense, insurance,
course-related books, supplies, equipment, or any non-academic
activity or non-credit course are not qualified expenses. What
does this leave? Basically: tuition.
If you take a deduction for education expenses in any other area
of the personal tax return, you cannot use that expense when
figuring a Hope or Lifetime Learning credit. If you received
tax-free assistance, such as a Pell Grant or scholarship, you
must deduct that amount from your qualified expenses; however,
most scholarships and Pell grant monies are taxable, so you may
be taxed, but you can also get the credit. If you make any
prepayments of tuition, you can use the prepaid amounts on your
current year's tax return, provided you have followed all other
guidelines.
Now, there are two different credits: the Hope credit and the
Lifetime Learning credit. What are their differences? Well,
first you cannot take them jointly; you must choose one or the
other. The Hope credit can only be taken during the first two
years of college, as defined by the educational institution, and
cannot exceed $1500. The Lifetime Learning Credit maximum for
2005 is $2000. It cannot be taken in conjunction with the Hope
Credit, even if your expense exceeds the Hope limitations. If
your expenses exceed the Hope limitation the first two years,
simply include the excess on your Schedule A. Your credits are
also limited by your level of income, and your adjusted gross
income totals. So, when figuring these credits, you need to
consider your current student status, as Hope will expire after
your 2nd year of higher education, and your income levels, and
your expense levels. You can take any excess expense deductions
under your itemized deduction expenses on Schedule A, when Hope
or Lifetime Learning is at their maximums.
Who is eligible to take these credits? You are eligible as a
taxpayer or eligible dependent that was enrolled as a student in
an eligible educational institution. If you can be claimed as
someone's dependent, they will be able to claim the education
credit, not the dependent. Generally, dependent students'
expenses will be claimed by their parents or legal guardians.
Now, here is an interesting note: if you are a student, and you
cannot be claimed as someone's dependent, only you can take the
education credit; even if you are not the individual paying the
expense. Why would you take the credit? I think a better
question would be why would you not take the credit? In case you
haven't noticed, it can be very expensive to attend higher
education classes. For anyone seeking to further their
education, receive a degree, and pursue their dream, any tax
credit that can be taken, is a helping hand toward achievement
of that dream. Today, without furthering your education, you're
almost positively sentenced to a lifetime of minimum wage
earnings, and struggling to make ends meet. A college education
is the fastest route still, to a better life, better wages, and
the achievement of the American Dream.