Credit comparisonThis table will help you decide which credit works best for you and your student.
Comparison of education credits
|Up to $1,650 credit per eligible student. ($3,600 maximum for certain Midwestern disaster area students).||Up to $2,000 credit per tax return. ($4,000 maximum for certain Midwestern disaster area students).|
|Available only for a student's first two years of postsecondary education.||Available for all years of postsecondary education, as well as for courses to acquire or improve job skills.|
|Available only for two years per eligible student.||Available for an unlimited number of years.|
|Student must be pursuing an undergraduate degree or other recognized education credential.||Student does not need to be pursuing a degree or other recognized education credential.|
|Student must be enrolled at least half time for at least one academic period beginning during the year.||Available for one or more courses.|
|Not available if student has a felony drug conviction on his or her record.||Felony drug conviction rule does not apply.|
Limitations and coordinationTo qualify for either credit, you must pay postsecondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. If the student was claimed as a dependent, he or she cannot file for the credit.
Both the Hope and Lifetime Learning credits are phased out for higher-income taxpayers. The credits are reduced for single filers with modified adjusted gross income between $48,000 and $58,000 and for married taxpayers earning $96,000 to $116,000.
Once you go over the income limit for your filing status, you cannot take these credits. And married taxpayers must file a joint return to get these tax breaks.
You also cannot claim either credit for a student named as a dependent on your tax return if you already used the tuition and fees adjustment for that same student.
However, you can claim the credits even if you received a distribution from a Coverdell education savings account or a qualified tuition program. Just make sure you don't use Coverdell or tuition account money to pay for the expenses you use to claim an education credit.
And for each student, you can choose to claim only one of the credits in a single tax year. That means you cannot use the Hope credit to pay for part of your daughter's tuition charges and then claim the Lifetime Learning break to write off $2,000 more of her school costs.
But if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. That means you can take the Hope credit for your sophomore daughter and the Lifetime Learning one for your senior son.
Midwestern student aidThe rash of severe storms, flooding and tornadoes across the Midwest last spring and summer prompted the enactment of The Heartland Disaster Tax Relief Act of 2008. Part of this new law expands the educational tax credits for students in the hardest hit areas.
Students attending college in specific Midwestern disaster areas can claim a Hope credit of up to $3,600 on their 2008 returns. This larger credit applies to certain counties in Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska and Wisconsin. The specific counties in those states are listed in chapter 3 of IRS Publication 970, Tax Benefits for Higher Education.
The Lifetime Learning credit rate for a Midwestern disaster area student is increased from 20 percent to 40 percent. This extra break could provide an eligible student a credit of up to $4,000.
The new law also expands the educational expenses that Midwestern students can count in claiming these credits. In addition to tuition and fees, Midwestern disaster area students can include the costs of books, supplies and equipment, as well as, in some cases, a portion of room and board costs.
Detailed eligibility guidelines for disaster area students as well as all others looking to claim the Hope or Lifetime Learning credits can be found in IRS Publication 970.