In addition, if your tax filing status is "married filing separately" or your modified adjusted gross income (MAGI) is $57,000 or more ($114,000 for a joint return), you won't be able to claim the credit.;
Lifetime Learning credit. The Lifetime Learning credit provides a maximum tax credit of $2,000 per return. Unlike the Hope credit, it's available for all years of postsecondary education and can even be applied for courses to improve job skills -- you don't need to be pursuing a formal degree.
The income limits are the same as with the Hope credit (MAGI of $57,000 or $114,000 for a joint return), but the felony-drug-conviction rule does not apply.
IRS rules do not allow you to double up on benefits. For example, you cannot claim the Lifetime Learning credit and a Hope credit for the same student. Likewise, if you claim one of the credits, you can't claim the tuition and fees deduction for the same student.
In some cases, the tuition and fees deduction may be a better payoff.
"Even if you can't take the credits, because they phase out at certain level of income, you may be able to take the tuition and fees deduction, which also phases out but at higher levels of income," says George Saenz, a certified public accountant and Bankrate's "Tax Talk" columnist.
"So just because you're not eligible for either credit doesn't mean you shouldn't look at the tuition and fees deduction."
Fortunately, for parents with more than one student in school, the IRS provides a little breathing room. You can claim the Hope credit for one child's expenses and the Lifetime Learning credit for the other child.
4. Tax-advantaged college savings plansPrepaid tuition plans. A 529 plan is an education savings plan directed by either a state or an educational institution.
There are two types: prepaid tuition plans and college savings plans. Prepaid tuition plans allow savers to lock in predetermined prices for future college tuition costs. They are fairly restrictive in that they generally have residency requirements, age restrictions for the beneficiary and limited enrollment periods. They may or may not have a "room and board" option.
However, hikes in college tuition in recent years have far exceeded inflation rates, making these an affordable option for those parents who don't mind sending their children to a public university in their home state. The payment is usually a fixed monthly amount to be paid over a period of several years and generally comes with a guaranteed number of credit hours.