Income limits
increased. Beginning
in 2004, the amount of your Hope
or lifetime learning credit is
gradually reduced (phased out)
if your modified adjusted gross
income (MAGI) is between $42,000
and $52,000 ($85,000 and
$105,000 if you file a joint
return). You cannot claim a
credit if your MAGI is $52,000
or more ($105,000 or more if you
file a joint return). This is an
increase from the 2003 limits of
$41,000 and $51,000 ($83,000 and
$103,000 if filing a joint
return). For more information,
see
Effect of the Amount of Your
Income on the Amount of Your
Credit, later.
Introduction
This chapter discusses two
tax credits (referred to here as
education credits) available to
persons who pay expenses for
higher education.
The Hope credit.
The lifetime
learning credit.
The chapter will:
Give you general
information that applies
to both of the credits,
Give you specific
information about each
of the credits,
Help you choose
which of the credits to
claim, and
Show you how to
figure the credit you
choose.
Can you
claim both education credits
this year. For each
student, you can elect for
any year only one of the
credits. For example, if you
elect to take the Hope
credit for a child on your
2004 tax return, you cannot,
for that same child, also
claim the lifetime learning
credit for 2004.
If you are eligible to
claim the Hope credit and
you are also eligible to
claim the lifetime learning
credit for the same student
in the same year, you can
choose to claim either
credit, but not both. For
2004, if the total qualified
education expenses for a
student are less than
$7,500, it will generally be
to your benefit to claim the
Hope credit.
If you pay qualified
education expenses for more
than one student in the same
year, you can choose to take
credits on a per-student,
per-year basis. This means
that, for example, you can
claim the Hope credit for
one student and the lifetime
learning credit for another
student in the same year.
Table 37-1.Comparison
of Education
Credits
Hope Credit
Lifetime
Learning Credit
Up to $1,500
credit per
eligible
student
Up to $2,000
credit per
return
Available only
until the first
2 years of
postsecondary
education are
completed
Available for
all years of
postsecondary
education and
for courses to
acquire or
improve job
skills
Available only
for 2 years per
eligible student
Available for an
unlimited number
of years
Student must be
pursuing an
undergraduate
degree or other
recognized
educational
credential
Student does not
need to be
pursuing a
degree
or other
recognized
educational
credential
Student must be
enrolled at
least half time
for at least one
academic period
beginning during
the year
Available for
one or more
courses
No felony drug
conviction on
student's record
Felony drug
conviction rule
does not apply
Differences
between the Hope and
lifetime learning credits.
There are several
differences between the Hope
credit and the lifetime
learning credit. For
example, you can claim the
Hope credit based on the
same student's expenses for
no more than 2 years.
However, there is no limit
on the number of years for
which you can claim a
lifetime learning credit
based on the same student's
expenses. The differences
between the two credits are
summarized in Table 37-1.
You may be able to take a
deduction for your education
expenses instead of a credit.
Choose the one that will give
you the lower tax. See chapter
21 for details about the tuition
and fees deduction.
Useful Items - You
may want to see:
Publication
970
Tax Benefits for
Education
Form
(and Instructions)
8863
Education Credits (Hope
and Lifetime Learning
Credits)
Information for Both
the Hope and
Lifetime Learning
Credits
Several rules are common to
both education credits. These
are discussed below.
Can You
Claim a Credit
The following rules will
help you determine if you
are eligible to claim an
education credit on your tax
return.
Who Can
Claim a
Credit
Generally, you can
claim an education
credit if all three of
the following
requirements are met.
You pay
qualified
education
expenses of
higher
education.
You pay the
education
expenses for an
eligible
student.
The eligible
student is
either yourself,
your spouse, or
a dependent for
whom you claim
an exemption on
your tax return.
“Qualified
education expenses”
are defined below under
What Expenses
Qualify. “Eligible
students” are
defined later under
Who Is an Eligible
Student. A “dependent
for whom you claim an
exemption” is
defined later under
Who Can Claim a
Dependent's Expenses.
You may find Figure
37-A, later in this
chapter, helpful in
determining if you can
claim an education
credit on your tax
return.
Who Cannot
Claim a
Credit
You cannot claim an
education credit for
2004 if any of the
following apply.
Your filing
status is
married filing
separately.
You are
listed as a
dependent in the
Exemptions
section on
another person's
tax return (such
as your
parents'). See
Who Can
Claim a
Dependent's
Expenses,
later.
Your
modified
adjusted gross
income (MAGI) is
$52,000 or more
($105,000 or
more in the case
of a joint
return). MAGI is
explained later
under
Effect of
the Amount of
Your Income on
the Amount of
Your Credit.
You (or your
spouse) were a
nonresident
alien for any
part of 2004 and
the nonresident
alien did not
elect to be
treated as a
resident alien
for tax
purposes. More
information on
nonresident
aliens can be
found in
Publication 519,
U.S. Tax Guide
for Aliens.
You claim a
tuition and fees
deduction for
the same student
in 2004.
What
Expenses Qualify
The education credits are
based on qualified education
expenses you pay for
yourself, your spouse, or a
dependent for whom you claim
an exemption on your tax
return. Generally, a credit
is allowed for qualified
education expenses paid in
2004 for an academic period
beginning in 2004 or in the
first 3 months of 2005.
For example, if you paid
$1,500 in December 2004 for
qualified tuition for the
Spring 2005 semester
beginning in January 2005,
you may be able to use that
$1,500 in figuring your 2004
credit.
Academic period.
An academic period
includes a semester,
trimester, quarter, or
other period of study
(such as a summer school
session) as reasonably
determined by an
educational institution.
In the case of an
educational institution
that uses credit hours
or clock hours and does
not have academic terms,
each payment period can
be treated as an
academic period.
Paid
with borrowed funds.
You can claim an
education credit for
qualified education
expenses paid with the
proceeds of a loan. You
use the expenses to
figure the education
credit for the year in
which the expenses are
paid, not the year in
which the loan is
repaid. Treat loan
payments sent directly
to the educational
institution as paid on
the date the institution
credits the student's
account.
Student
withdraws from
class(es). You can
claim an education
credit for qualified
education expenses not
refunded when a student
withdraws.
Qualified
Education
Expenses
For purposes of an
education credit,
qualified education
expenses are tuition and
certain related expenses
required for enrollment
or attendance at an
eligible educational
institution.
Eligible educational
institution.
An eligible
educational
institution is any
college, university,
vocational school,
or other
postsecondary
educational
institution eligible
to participate in a
student aid program
administered by the
Department of
Education. It
includes virtually
all accredited,
public, nonprofit,
and proprietary
(privately owned
profit-making)
postsecondary
institutions. The
educational
institution should
be able to tell you
if it is an eligible
educational
institution.
Certain
educational
institutions located
outside the United
States also
participate in the
U.S. Department of
Education's Federal
Student Aid (FSA)
programs. See
chapter 2 or 3 of
Publication 970 for
more information.
Related expenses.
Student-activity
fees and expenses
for course-related
books, supplies, and
equipment are
included in
qualified education
expenses only if the
fees and expenses
must be paid to the
institution as a
condition of
enrollment or
attendance.
In the following
examples, assume
that each student is
an eligible student
at an eligible
educational
institution.
Example 1.
Jackson is a
sophomore in
University V's
degree program in
dentistry. This
year, in addition to
tuition, he is
required to pay a
fee to the
university for the
rental of the dental
equipment he will
use in this program.
Because the
equipment rental fee
must be paid to
University V for
enrollment and
attendance,
Jackson's equipment
rental fee is a
qualified expense.
Example 2.
Donna and
Charles, both
first-year students
at College W, are
required to have
certain books and
other reading
materials to use in
their mandatory
first-year classes.
The college has no
policy about how
students should
obtain these
materials, but any
student who
purchases them from
College W's
bookstore will
receive a bill
directly from the
college. Charles
bought his books
from a friend, so
what he paid for
them is not a
qualified education
expense. Donna
bought hers at
College W's
bookstore. Although
Donna paid College W
directly for her
first-year books and
materials, her
payment is not a
qualified expense
because the books
and materials are
not required to be
purchased from
College W for
enrollment or
attendance at the
institution.
Example 3.
When Marci
enrolled at College
X for her freshman
year, she had to pay
a separate student
activity fee in
addition to her
tuition. This
activity fee is
required of all
students, and is
used solely to fund
on-campus
organizations and
activities run by
students, such as
the student
newspaper and the
student government.
No portion of the
fee covers personal
expenses. Although
labeled as a student
activity fee, the
fee is required for
Marci's enrollment
and attendance at
College X.
Therefore, it is a
qualified expense.
No Double
Benefit
Allowed
You cannot do any of
the following.
Deduct
higher education
expenses on your
income tax
return (as, for
example, a
business
expense) and
also claim an
education credit
based on those
same expenses.
Claim an
education credit
in the same year
that you are
claiming a
tuition and fees
deduction for
the same
student.
Claim a Hope
credit and a
lifetime
learning credit
based on the
same qualified
education
expenses.
Claim an
education credit
based on the
same expenses
used to figure
the tax-free
portion of a
distribution
from a Coverdell
education
savings account
(ESA) or
qualified
tuition program
(QTP).
Claim a
credit based on
qualified
education
expenses paid
with tax-free
scholarship,
grant, or
employer-provided
educational
assistance. See
Adjustments
to Qualified
Education
Expenses,
next.
Adjustments
to Qualified
Education
Expenses
If you pay qualified
education expenses with
certain tax-free funds,
you cannot claim a
credit for those
amounts. You must reduce
the qualified education
expenses by the amount
of any tax-free
educational assistance
and refund(s) you
received.
Tax-free educational
assistance.
This includes:
Tax-free
part of
scholarships
and
fellowships
(see chapter
13 of this
publication
and chapter
1 of
Publication
970),
Pell
grants (see
chapter 1 of
Publication
970),
Employer-provided
educational
assistance
(see chapter
11 of
Publication
970),
Veterans'
educational
assistance
(see chapter
1 of
Publication
970), and
Any
other
nontaxable
(tax-free)
payments
(other than
gifts or
inheritances)
received as
educational
assistance.
Refunds.
Qualified
education expenses
do not include
expenses for which
you, or someone else
who paid qualified
education expenses
on behalf of a
student, receive a
refund. For more
information, see
Refunds
in chapters 2 and 3
of Publication 970.
Amounts that do not
reduce qualified
education expenses.
Do not reduce
qualified education
expenses by amounts
paid with funds the
student receives as:
Payment
for
services,
such as
wages,
A loan,
A gift,
An
inheritance,
or
A
withdrawal
from the
student's
personal
savings.
Do not reduce the
qualified education
expenses by any
scholarship or
fellowship reported
as income on the
student's tax return
in the following
situations.
The use
of the money
is
restricted
to costs of
attendance
(such as
room and
board) other
than
qualified
education
expenses.
The use
of the money
is not
restricted
and is used
to pay
education
expenses
that are not
qualified
(such as
room and
board).
Example 1.
In 2004, Jackie
paid $3,000 for
tuition and $5,000
for room and board
at University X. The
university did not
require her to pay
any fees in addition
to her tuition in
order to enroll in
or attend classes.
To help pay these
costs, she was
awarded a $2,000
scholarship and a
$4,000 student loan.
The terms of the
scholarship state
that it may be used
to pay any of
Jackie's college
expenses. Because
she applied it
toward her tuition,
the scholarship is
tax free. Therefore,
for purposes of
figuring an
education credit
(either Hope or
lifetime learning),
she must first use
the $2,000
scholarship to
reduce her tuition
(her only qualified
education expense).
The student loan is
not tax-free
educational
assistance, so she
does not use it to
reduce her qualified
expenses. Jackie is
treated as having
paid $1,000 in
qualified education
expenses ($3,000
tuition – $2,000
scholarship) in
2004.
Example 2.
The facts are the
same as in
Example 1,
except that Jackie
uses the $2,000
scholarship to pay
room and board, and,
therefore, reports
her entire
scholarship as
income on her tax
return. In this
case, the
scholarship is
allocated to
expenses other than
qualified education
expenses. Jackie is
treated as paying
the entire $3,000
tuition with other
funds and can figure
her education credit
on the entire
$3,000.
Expenses
That Do Not
Qualify
Qualified education
expenses do not include
amounts paid for:
Insurance,
Medical
expenses
(including
student health
fees),
Room and
board,
Transportation,
or
Similar
personal,
living, or
family expenses.
This is true even if
the amount must be paid
to the institution as a
condition of enrollment
or attendance.
Sports, games,
hobbies, and
noncredit courses.
Qualified
education expenses
generally do not
include expenses
that relate to any
course of
instruction or other
education that
involves sports,
games or hobbies, or
any noncredit
course. However, if
the course of
instruction or other
education is part of
the student's degree
program, these
expenses can
qualify.
Comprehensive or
bundled fees.
Some eligible
educational
institutions combine
all of their fees
for an academic
period into one
amount. If you do
not receive or do
not have access to
an allocation
showing how much you
paid for qualified
education expenses
and how much you
paid for personal
expenses, such as
those listed above,
contact the
institution. The
institution is
required to make
this allocation and
provide you with the
amount you paid (or
were billed) for
qualified education
expenses on Form
1098-T, Tuition
Statement.
See
Figuring the
Credit,
later, for more
information about
Form 1098-T.
Who Can
Claim a
Dependent's
Expenses
If there are qualified
education expenses for your
dependent for a year, either
you or your dependent, but
not both of you, can claim
an education credit for your
dependent's expenses for
that year.
For you to claim an
education credit for your
dependent's expenses, you
must also claim an exemption
for your dependent. You do
this by listing your
dependent's name and other
required information on Form
1040 (or Form 1040A), line
6c.
IF you...
THEN only...
claim an
exemption on
your tax return
for a dependent
who is an
eligible student
you can claim an
education credit
based on that
dependent's
expenses. The
dependent cannot
claim a credit.
do
not
claim an
exemption on
your tax return
for a dependent
who is an
eligible student
(even if
entitled to the
exemption)
the
dependent can
claim an
education
credit. You
cannot claim a
credit based on
this dependent's
expenses.
Expenses paid by
dependent. If you
claim an exemption on
your tax return for an
eligible student who is
your dependent, treat
any expenses paid (or
deemed paid) by your
dependent as if you had
paid them. Include these
expenses when figuring
the amount of your
education credit.
Qualified
education expenses paid
directly to an eligible
educational institution
for your dependent under
a court-approved divorce
decree are treated as
paid by your dependent.
Expenses paid by you.
If you claim an
exemption for a
dependent who is an
eligible student, only
you can include any
expenses you paid when
figuring the amount of
an education credit. If
neither you nor anyone
else claims an exemption
for the dependent, only
the dependent can
include any expenses you
paid when figuring an
education credit.
Expenses paid by others.
Someone other than
you, your spouse, or
your dependent (such as
a relative or former
spouse) may make a
payment directly to an
eligible educational
institution to pay for
an eligible student's
qualified education
expenses. In this case,
the student is treated
as receiving the payment
from the other person
and, in turn, paying the
institution. If you
claim an exemption on
your tax return for the
student, you are
considered to have paid
the expenses.
Example.
In 2004, Ms.
Allen makes a
payment directly to
an eligible
educational
institution for her
grandson Todd's
qualified education
expenses. For
purposes of claiming
an education credit,
Todd is treated as
receiving the money
as a gift from his
grandmother and, in
turn, paying his
qualified education
expenses himself.
Unless an
exemption for Todd
is claimed on
someone else's
return, only Todd
can use the payment
to claim an
education credit.
If anyone, such
as Todd's parents,
claims an exemption
for Todd on his or
her tax return,
whoever claims the
exemption may be
able to use the
expenses to claim an
education credit. If
anyone else claims
an exemption for
Todd, Todd cannot
claim an education
credit.
Tuition
reduction. When an
eligible educational
institution provides a
reduction in tuition to
an employee of the
institution (or spouse
or dependent child of an
employee), the amount of
the reduction may or may
not be taxable. If it is
taxable, the employee is
treated as receiving a
payment of that amount
and, in turn, paying it
to the educational
institution on behalf of
the student. For more
information on tuition
reductions, see
Qualified Tuition
Reduction in
chapter 1 of Publication
970.
Effect of
the Amount of
Your Income on
the Amount of
Your Credit
The amount of your
education credit is phased
out (gradually reduced) if
your modified adjusted gross
income (MAGI) is between
$42,000 and $52,000 ($85,000
and $105,000 if you file a
joint return). You cannot
claim an education credit if
your MAGI is $52,000 or more
($105,000 or more if you
file a joint return).
Modified adjusted gross
income (MAGI).
For most taxpayers,
MAGI is adjusted gross
income (AGI) as figured
on their federal income
tax return.
MAGI when using Form
1040A. If you
file Form 1040A, your
MAGI is the AGI on line
22 of that form.
MAGI when using Form
1040. If you
file Form 1040, your
MAGI is the AGI on line
37 of that form,
modified by adding back
any:
Foreign
earned income
exclusion,
Foreign
housing
exclusion,
Exclusion of
income for
bona fide
residents of
American Samoa,
and
Exclusion of
income from
Puerto Rico.
Phaseout. If your
MAGI is within the range
of incomes where the
credit must be reduced,
you will figure your
reduced credit using
lines 8–14 of Form 8863.
When Must
the Credit Be
Repaid
(Recaptured)
If, after you file your
2004 tax return, you or
someone else receives
tax-free educational
assistance for, or a refund
of, an expense you used to
figure an education credit
on that return, you may have
to repay all or part of the
credit. You must refigure
your education credit(s) for
2004 as if the assistance or
refund was received in 2004.
Subtract the amount of the
refigured credit from the
amount of the credit you
claimed. The result is the
amount you must repay. You
add the repayment
(recapture) to your tax
liability for the year in
which you receive the
assistance or refund (see
the instructions for your
tax return for that year).
Your original 2004 tax
return does not change.
Figure 37-A.
Can You
Claim an
Education
Credit for
2004?
Information for Only
the Hope Credit
You may be able to claim a
Hope credit of up to $1,500 for
qualified education expenses
paid for each eligible student.
Who Is an
Eligible Student
To claim the Hope credit,
the student for whom you pay
qualified education expenses
must be an eligible student.
This is a student who meets
all of the following
requirements.
Did not have
expenses that were
used to figure a
Hope credit in any 2
earlier tax years.
Had not
completed the first
2 years of
postsecondary
education
(generally, the
freshman and
sophomore years of
college) before
2004.
For at least one
academic period
beginning in 2004,
was enrolled at
least half-time in a
program leading to a
degree, certificate,
or other recognized
educational
credential.
Was free of any
federal or state
felony conviction
for possessing or
distributing a
controlled substance
as of the end of
2004.
Completion of first 2
years. A student
who was awarded 2 years
of academic credit for
postsecondary work
completed before 2004
has completed the first
2 years of postsecondary
education. This student
generally would not be
an eligible student for
purposes of the Hope
credit.
Exception.
Any academic credit
awarded solely on the
basis of the student's
performance on
proficiency examinations
is disregarded in
determining whether the
student has completed 2
years of postsecondary
education.
Enrolled at least
half-time. A
student was enrolled at
least half-time if the
student was taking at
least half the normal
full-time work load for
his or her course of
study.
The standard for what
is half of the normal
full-time work load is
determined by each
eligible educational
institution. However,
the standard may not be
lower than any of those
established by the
Department of Education
under the Higher
Education Act of 1965.
Example 1.
Marty graduated from
high school in June
2003. In September, he
enrolled in an
undergraduate degree
program at College U,
and attended full time
for both the 2003 Fall
and 2004 Spring
semesters. For the 2004
Fall semester, Marty was
enrolled less than
half-time. Because Marty
was enrolled in an
undergraduate degree
program on at least a
half-time basis for at
least one academic
period that began during
2003 and at least one
academic period that
began during 2004, he is
an eligible student for
tax years 2003 and 2004
(including the 2004 Fall
semester when he
enrolled at College U on
less than a half-time
basis).
Example 2.
After taking classes
at College V on a
half-time basis for the
2003 Spring and Fall
semesters, Sharon became
a full-time student for
the 2004 Spring
semester. College V
classified Sharon as a
second-semester
sophomore for the 2004
Spring semester and as a
first-semester junior
for the 2004 Fall
semester. Because
College V did not
classify Sharon as
having completed the
first two years of
postsecondary education
as of the beginning of
2004, Sharon is an
eligible student for tax
year 2004. Therefore,
the qualified education
expenses paid for the
2004 Spring semester and
the 2004 Fall semester
are taken into account
in calculating any Hope
credit for 2004.
Example 3.
During the 2003 Fall
semester, Luis was a
high school student who
took classes on a
half-time basis at
College X. Luis was not
enrolled as part of a
degree program at
College X because
College X only admits
students to a degree
program if they have a
high school diploma or
equivalent. Because Luis
was not enrolled in a
degree program at
College X during 2003,
Luis was not an eligible
student for tax year
2003.
Example 4.
The facts are the
same as in
Example 3.
During the 2004 Spring
semester, Luis again
attended College X but
not as part of a degree
program. Luis graduated
from high school in June
2004. For the 2004 Fall
semester, Luis enrolled
as a full-time student
in College X as part of
a degree program, and
College X awarded Luis
credit for his prior
coursework at College X.
Because Luis was
enrolled in a degree
program at College X for
the 2004 Fall term on at
least a half-time basis,
Luis is an eligible
student for all of tax
year 2004. Therefore,
the qualified education
expenses paid for
classes taken at College
X during both the 2004
Spring semester (during
which Luis was not
enrolled in a degree
program) and the 2004
Fall semester are taken
into account in
computing any Hope
credit.
Example 5.
Diana graduated from
high school in June
2002. In January 2003,
Diana enrolled in a
one-year postsecondary
certificate program on a
full-time basis to
obtain a certificate as
a travel agent. Diana
completed the program in
December 2003, and was
awarded a certificate.
In January 2004, she
enrolled in a one-year
postsecondary
certificate program on a
full-time basis to
obtain a certificate as
a computer programmer.
Diana is an eligible
student for both tax
years 2003 and 2004
because she meets the
degree requirement, the
work load requirement,
and the year of study
requirement for those
years.
Figuring the
Credit
The amount of the Hope
credit (per eligible
student) is the sum of:
100% of the
first $1,000 of
qualified education
expenses you paid
for the eligible
student, and
50% of the next
$1,000 of qualified
education expenses
you paid for that
student.
The maximum amount of
Hope credit you can claim in
2004 is $1,500 times the
number of eligible students.
You can claim the full
$1,500 for each eligible
student for whom you paid at
least $2,000 of qualified
education expenses. However,
the credit may be reduced
based on your modified
adjusted gross income
(MAGI). See
Effect of the Amount of Your
Income on the Amount of Your
Credit, earlier.
Example.
Jon and Karen Frost
are married and file a
joint tax return. For
2004, they claim an
exemption for their
dependent daughter on
their tax return. Their
MAGI is $70,000. Their
daughter is in her
sophomore (second) year
of studies at the local
university. Jon and
Karen paid qualified
education expenses of
$4,300 in 2004.
Jon and Karen, their
daughter, and the local
university meet all of
the requirements for the
Hope credit. Jon and
Karen can claim a $1,500
Hope credit in 2004.
This is 100% of the
first $1,000 of
qualified education
expenses, plus 50% of
the next $1,000.
Form
1098-T.
To help you figure
your Hope credit, you
should receive Form
1098-T. Generally, an
eligible educational
institution (such as a
college or university)
must send Form 1098-T
(or acceptable
substitute) to each
enrolled student by
January 31, 2005.
Claiming the
Credit
You claim the Hope credit
by completing Parts I and
III of Form 8863
and submitting it with
your Form 1040 or 1040A.
Enter the credit on Form
1040, line 49, or on Form
1040A, line 31. An
illustrated example using
Form 8863 appears at the end
of this chapter.
Information for Only
the Lifetime
Learning Credit
You may be able to claim a
lifetime learning credit of up
to $2,000 for qualified
education expenses paid for all
students enrolled in eligible
educational institutions.
Who Is an
Eligible Student
For purposes of the
lifetime learning credit, an
eligible student is a
student who is enrolled in
one or more courses at an
eligible educational
institution.
Figuring the
Credit
The amount of the
lifetime learning credit is
20% of the first $10,000 of
qualified education expenses
you paid for all eligible
students. The maximum amount
of lifetime learning credit
you can claim for 2004 is
$2,000 (20% × $10,000).
However, that amount may be
reduced based on your
modified adjusted gross
income (MAGI). See
Effect of the Amount of Your
Income on the Amount of Your
Credit, earlier.
Example.
Bruce and Toni are
married and file a joint
tax return. For 2004,
their MAGI is $75,000.
Toni is attending a
local college (an
eligible educational
institution) to earn
credits toward a degree
in nursing. She already
has a bachelor's degree
in history and wants to
become a nurse. In
August 2004, Toni paid
$6,000 of qualified
education expenses for
her Fall 2004 semester.
Bruce and Toni can claim
a $1,200 (20% × $6,000)
lifetime learning credit
on their 2004 joint tax
return.
Form
1098-T.
To help you figure
your lifetime learning
credit, you should
receive Form 1098-T.
Generally, an eligible
educational institution
(such as a college or
university) must send
Form 1098-T (or
acceptable substitute)
to each enrolled student
by January 31, 2005.
Claiming the
Credit
You claim the lifetime
learning credit by
completing Parts II and III
of Form 8863
and submitting it with
your Form 1040 or 1040A.
Enter the credit on Form
1040, line 49, or Form
1040A, line 31. An
illustrated example using
Form 8863 is shown at the
end of this chapter.
Illustrated Example
Dave and Valerie Jones are
married and file a joint tax
return. For 2004, they claim
exemptions for their two
dependent children on their tax
return. Their modified adjusted
gross income is $88,000. Their
tax, before credits, is $9,956.
Their son, Sean, will receive
his bachelor's degree in
psychology from the state
college in May 2005. Their
daughter, Corey, enrolled
full-time at that same college
in August 2003, to begin working
on her bachelor's degree in
physical education. In July
2004, Dave and Valerie paid
$2,200 in tuition costs for each
child for the Fall 2004
semester. In December 2004, they
also paid $2,600 of tuition for
each child for the Spring 2005
semester that begins in January.
Dave and Valerie, their
children, and the college meet
all of the requirements for the
higher education credits.
Because Sean is beyond the
second (sophomore) year of his
postsecondary education, his
expenses do not qualify for the
Hope credit. But, amounts paid
for Sean's expenses in 2004 for
academic periods beginning in
2004 and the first 3 months of
2005 qualify for the lifetime
learning credit. Corey is in her
first two (freshman and
sophomore) years of
postsecondary education, and
expenses paid for her in 2004,
for academic periods beginning
in 2004 and January 2005,
qualify for the Hope credit.
Dave and Valerie figure
their tentative education
credits for 2004, $2,460, as
shown in the completed Form
8863. They cannot claim the full
amount because their modified
adjusted gross income is more
than $85,000. They carry the
amount from line 20 of Form
8863, $2,091, to line 49 of Form
1040, and they attach the Form
8863 to their return.
