Get federal income tax relief and take advantage of education-related tax credits and deductions. These benefits can significantly reduce your tax liabilities, by thousands of dollars in some cases.

Hope Tax Credit
The Hope credit provides a family up to a $1,500 maximum tax credit per year per dependent student. You may claim it for two years, if you:

• have not completed the first two years of postsecondary education (generally, if you're a freshman or sophomore).
• are enrolled in a program that leads to a degree, certificate, or other recognized educational credential.
• are taking at least half the normal full-time course load for your major for at least one academic period beginning during the calendar year.
• are free of any felony conviction for possessing or distributing a controlled substance.

The Hope credit covers 100% of the first $1,000 in payments for qualified tuition and fees and 50% of the second $1,000.

Expenses that qualify for the Hope credit include school tuition and required fees, minus any tax-free grants or scholarships. The costs of books and supplies are usually not covered, but you should check with your school. This tax credit does not cover room and board, insurance, transportation, or medical fees.

The amount of your Hope credit for 2005 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is $43,000–$53,000 ($87,000–$107,000 if you file a joint return). You cannot claim a credit if your MAGI is $53,000 or more ($107,000 or more if you file a joint return). This is an increase from the 204 limits of $42,000–$52,000 ($85,000–$105,000 if filing a joint return).

To claim a Hope tax credit, taxpayers must file using federal tax Form 1040 or 1040A and attach Form 8863 (Education Credits); however, itemizing deductions is not a requirement.

Visit the IRS Website for additional Tax Benefits for Education information.

back to top ^

Lifetime Learning Tax Credit
It's a tax credit of 20% of the first $10,000 you paid for qualified tuition and related expenses for yourself, your spouse, or your dependent for whom you claim an exemption. The maximum amount of credit you can claim for 2004 is $2,000 (20% of $10,000) for all students in the family.

You may claim the Lifetime Learning Tax Credit if your family has children enrolled at eligible institutions. There are several differences between the Hope credit and the Lifetime Learning tax credits. The latter:

• is not based on the student's workload and is allowed for one or more courses.
• is not limited to students in the first two years of postsecondary education.
• can be claimed for expenses for graduate-level degree work.
• has no limit on the number of years for which the credit can be claimed for each student.
• does not increase (i.e., the amount to be claimed) based on the number of students receiving qualified expenses.

The amount of your lifetime learning credit for 2005 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $43,000 and $53,000 ($87,000 and $107,000 if you file a joint return). You cannot claim a credit if your MAGI is $53,000 or more ($107,000 or more if you file a joint return). This is an increase from the 2004 limits of $42,000 and $52,000 ($85,000 and $105,000 if filing a joint return).

To claim a Lifetime Learning credit, taxpayers must file using federal tax form 1040 or 1040A and attach Form 8863 (Education Credits); however, itemizing deductions is not a requirement.

Visit the IRS Website for additional Tax Benefits for Education information.

Education Credit Program Comparison

back to top ^

Tuition and Fees Deduction
Taxpayers can reduce income subject to tax by up to $4,000 for tuition and related expenses. Qualifying expenses are the tuition and fees required for enrollment or attendance at an eligible college, university, or vocational school. These expenses must have been incurred by the taxpayer, the taxpayer's spouse, or the taxpayer's dependent.

The deduction is not available to single taxpayers with adjusted gross incomes exceeding $65,000, married taxpayers filing jointly with adjusted gross incomes exceeding $130,000, or for married taxpayers filing separately.

If your modified adjusted gross income (MAGI) is not more than $65,000 ($130,000 if you are married filing jointly, your maximum tuition and fees deduction is $4,000). If your MAGI is larger than $65,000 ($130,000), but is not more than $80,000 ($160,000 if you are married filing jointly), your maximum tuition and fees deduction is $2,000. No tuition and fees deduction is allowed if your MAGI is larger than $80,000 ($160,000).

To claim this deduction, taxpayers must file federal tax form 1040; however, itemizing deductions is not a requirement.

Visit the IRS Website for additional information.

back to top^

Student Loan Interest Deduction
A significant amount of interest paid on student loans is tax deductible. Education-loan borrowers may be able to deduct up to $2,500 in interest paid yearly on loans used to pay for qualified educational expenses.

To qualify, proceeds of the loan must have been used for qualified higher education expenses, including tuition, fees, room, board, supplies, and other related expenses by the taxpayer, the taxpayer's spouse, or the taxpayer's dependent.

The maximum allowable deduction is gradually reduced for single taxpayers whose incomes exceed $50,000 ($100,000 for married taxpayers filing jointly), and is not available for those with incomes over $65,000 ($130,000 if filing jointly), or for married taxpayers filing separately.

If you paid $600 or more in interest on a qualified student loan during the year, you will receive a Form 1098-E, Student Loan Interest Statement, from the financial institution, from a governmental unit (or any of its subsidiary agencies), from educational institutions, or any other person to whom you had paid student loan interest of $600 or more in the course of their trade or business.

To claim this deduction, taxpayers must file federal tax form 1040 or 1040A; however, itemizing deductions is not a requirement.

Visit the IRS Website for additional information.

back to top^

Katrina Emergency Tax Relief Act of 2005
This Act provides tax relief for individuals affected by Hurricane Katrina. Under the Act, you may be able to claim an education credit, a student loan interest deduction, and/or a tuition and fees deduction. See Publication 4492.

back to top ^