Can I deduct the Hope Credit for college expenses on my tax return?

With higher education costs climbing steadily upward nearly 8% per year many families are particularly concerned about accumulating enough money to put their children through college. College cost projections are continually increasing. Based on the latest averages from The College Board and recent average annual college cost increases, a child who entered kindergarten in 1995 will face four-year college costs of nearly $100,000 if he or she chooses to attend a public college in 2007. For a private college, costs will probably be double that.

The Hope Credit may be taken for qualified education expenses (i.e., tuition and fees, but not room and board or books) incurred during the first two years of a taxpayer's, spouse's, or dependent's post secondary undergraduate education.

You cannot claim the Hope Credit if you are subject to the phase out because of the amount of your income. The Hope Credit is phased out as modified AGI rises from $90,000 to $110,000 for joint IRS tax return filers ($45,000 to $55,000 for single tax filers).

An eligible student must meet the following requirements to deduct the Hope Credit:

	be enrolled in one of the first two years of post secondary education;
	be enrolled in a program that leads to a degree, certificate, or other recognized educational credential;
	be taking at least half of the normal full time work load for his/her course of study for at least one academic period beginning during the calendar year;
	not have a felony conviction for possessing or distributing a controlled substance.

The Hope Credit is nonrefundable and is available for up to 100% of the first $1,100 and 50% of the second $1,100 of qualified tuition and related expenses paid during a taxable year. If either the Lifetime Learning Credit or the education income exclusion for withdrawals from an Education IRA is elected the Hope Credit may not be taken on your tax return.

In the case of a dependent, if either the Hope Credit or the Lifetime Learning Credit is claimed by a taxpayer other than the student (e.g., a parent), the dependent student may not claim the Hope Credit, and the taxpayer is treated as paying all eligible expenses for the tax year for Hope Credit purposes. The maximum annual Hope Credit is $1,650.

As an alternative to the Hope Credit, eligible taxpayers may elect to exclude from taxable income amounts withdrawn from Education IRAs that are used to pay the taxpayer's, spouse's, or dependent's qualified education expenses. The income exclusion is not available in any tax year that a Hope Credit or Lifetime Learning Credit is elected with respect to a student.

Figure your Hope Credit on Form 8863.

Related tax information about the Hope Credit

Tax Directory Topics:
Academic Scholarships
Educational Assistance Exclusion
Education IRAs
Lifetime Learning Credit
Qualified Tuition Programs
Student Loan Interest Deduction
U.S. Savings Bond Tuition Plans
Tax Credits

IRS publications about the Hope Credit:
For further information refer to IRS Publication 970, Tax Benefits for Higher Education; IRS Publication 508, Educational Expenses; IRS Publication 1577,

Applying for Educational Financial Aid; and IRS Publication 520,

Scholarships and Fellowships. Also see IRS Publication 17,

Your Federal Income Tax. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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