American Opportunity (Hope) Credit

On February 17, 2009 President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 (ARRA). Under this act, the Hope credit became known as the American Opportunity (Hope) Credit. The ARRA is part of an economic stimulus package that contains a historic provision, which allows the cost of college textbooks and course materials as well as tuition eligible for tax credits. Provisions for this tax credit are specific to tax year 2009 and 2010 for the first 4 years of post-secondary education.

Students pursuing an undergraduate degree or other recognized education credential and enrolled at least half-time during at least one academic period that begins during a tax year may be eligible to claim the credit.

For the 2009 and 2010 tax year, eligible taxpayers may claim up to $2,500 of the cost of tuition and related expenses paid during the taxable year multiplied by the number of qualifying students in the family. In addition, up to 40% of the credit is now refundable. This means that those who do not earn enough to pay taxes may still qualify for a partial refund.

The student cannot have a felony drug conviction in a year that the credit applies.

Lifetime Learning Credit

The Lifetime Learning Credit applies to qualified tuition and fees for undergraduate, graduate, and continuing-education course work. Students are not required to be enrolled at least half-time in one of the first four years of post-secondary education. There is no limit to the number of years a taxpayer may claim the credit.

The maximum credit for 2009 is $2,000 for qualified education expenses per return or $4,000 if student is in a Midwestern disaster area; however, the credit may be reduced based on the taxpayers MAGI. Eligible education expenses are offset by scholarships, grants and other tax-free tuition benefits. If the taxpayer is claiming the American Opportunity (Hope) Credit for a particular student, they cannot claim expenses paid for that year toward the Lifetime Learning Credit.

Tax Advice

Please note this is a brief description of the tax credits. LBCC cannot determine if you qualify for the education tax credit and is not allowed to give you tax advice. For more detailed information on claiming the American Opportunity (Hope) Credit or Lifetime Learning Credit, refer to IRS Publication 970 on Tax Benefits for Education and IRS Form 8863. You may also call the IRS Economic Stimulus Line at (866) 234-2942 or a tax professional.

You may also contact the IRS at 1-800-829-1040.