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Individual taxpayers may claim a nonrefundable credit, the Hope credit, against Federal income taxes of up to $1,800 (for 2009) per eligible student per year for qualified tuition and related expenses paid for the first two years of the student's post-secondary education in a degree or certificate program. The Hope credit rate is 100% on the first $1,200 of qualified tuition and related expenses, and 50% on the next $1,200 of qualified tuition and related expenses.
The Hope credit that a taxpayer may otherwise claim is phased out ratably for taxpayers with modified AGI between $50,000 and $60,000 ($100,000 and $120,000 for joint filers) for 2009.
The qualified tuition and related expenses must be incurred on behalf of the taxpayer, his spouse, or dependent. The Hope credit is available with respect to an individual student for two tax years, provided that the student has not completed the first two years of post-secondary education before the beginning of the second tax year. It is available in the tax year the expenses are paid, provided the education is furnished to the student during that year or an academic period beginning during the first three months of the next tax year.
Qualified tuition and related expenses include tuition and fees (excluding nonacademic fees) required to be paid to an eligible educational institution as a condition of enrollment or attendance of an eligible student at the institution. Charges and fees associated with meals, lodging, insurance, transportation, and similar personal, living, or family expenses aren't eligible for the credit. The expenses of education involving sports, games, or hobbies are not qualified tuition and related expenses unless this education is part of the student's degree program.
The Recovery Act modifies the Hope credit for tax years beginning in 2009 or 2010. The modified credit is referred to as the American opportunity tax credit. The credit is up to $2,500 per eligible student per year for qualified tuition and related expenses paid for each of the first four years of the student's post-secondary education in a degree or certificate program. The modified credit rate is 100% on the first $2,000 of qualified tuition and related expenses, and 25% on the next $2,000 of qualified tuition and related expenses. The definition of qualified tuition and related expenses is expanded to include course materials.
The credit is available with respect to an individual student for four years, provided he has not completed the first four years of post-secondary education before the beginning of the fourth tax year.
The credit is phased out ratably for taxpayers with modified AGI between $80,000 and $90,000 ($160,000 and $180,000 for joint filers). The credit may be claimed against AMT.
Subject to an exception, forty percent of a taxpayer's otherwise allowable credit is refundable. No portion of the credit is refundable if the taxpayer claiming the credit is a child subject to the kiddie tax.
The Recovery Act of 2009 requires IRS to conduct two studies and submit a report to Congress on their results within one year after the enactment date: a study on how to coordinate the Hope and Lifetime Learning credits with the Pell grant program; and a study on requiring students to perform community service as a condition of taking their tuition and related expenses into account for purposes of the Hope and Lifetime Learning credits.
Return to American Recovery and Reinvestment Tax Act of 2009 overview page.
Posted: February 15, 2009