There are two basic credits that qualify as education credits on your client's tax return the Hope Scholarship Credit and the Lifetime Learning Credit. Both of these credits are figured using IRS Form 8863, Education Credits (Hope and Lifetime Learning Credits.) Your client may not claim both of these credits for the same student within the same year. Keep in mind that credits reduce your client's taxes, dollar for dollar and are subject to tax liability limits. Your client may be able to claim one of the credits if they pay qualifying higher education expenses for him/her, their spouse or a dependent.
Married couples must file jointly to claim educational credits. Higher education credits cannot be claimed if your client's modified adjusted gross income is more than $50,000 if filing singly or $100,000 if filing jointly. If your client adjusted gross income is between $40,000 and $50,000 for single filers or between $80,000 and $100,000 for joint filers, the amount of credit they may claim will be phased out.
The Hope Scholarship Credit
This credit allows for a $1,500 credit for each eligible student that is enrolled in his or her first or second year of college or post-secondary school. Eligible students must meet the following requirements:
Cannot qualify if the student has been convicted of a drug-related felony such as possession or distribution of drugs
The Lifetime Learning Credit
This credit allows for a maximum credit of $1,000. It is actually calculated as 20% of up to $5,000 for qualified tuition. The Lifetime Learning Credit differs from the Hope Scholarship Credit in the following areas: