Three Big Education Tax Incentives for You

The Taxpayer Relief Act of 1997 (TRA97) provides many new tax benefits for persons who are paying higher education costs for themselves and/or members of their families. These benefits include education tax credits, deduction for student loan interest, a new education individual retirement account (education IRA), and withdrawals from traditional IRAs for higher education expenses. Three of these tax benefits are discussed below.

1. HOPE Scholarship Credit,
2. Lifetime Learning Credit, and
3. Student Loan Interest Deduction

For additional information please see the law.

Internal Revenue Service

IRS Publication 970- Tax Credits for Higher Education
Education Tax Incentives

The HOPE Scholarship and Lifetime Learning Credits - U. S. Department of Education

http://www.ed.gov/offices/OPE/PPI/HOPE/

After you have read the details of each tax incentive have a look at the summary chart of the Three Big Education Tax Incentives for You.

As a service to our students, the University of Florida will send (in addition to the required IRS 1098 Forms) to the student's permanent address a Tuition Summary Report, and if applicable, a Student Loan Interest Statement. You will receive these statements by February 1. This new legislation has raised many questions and unresolved issues. Therefore, we encourage you to visit the federal websites listed. We strongly recommend that you consult your tax advisor for specific information about your eligibility and potential benefits.

1. HOPE Scholarship Credit

Beginning January 1, 1998, taxpayers may be eligible to claim a nonrefundable HOPE Scholarship Credit against their federal income taxes. The HOPE Scholarship Credit may be claimed for the qualified tuition and related expenses of EACH student in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent) who is enrolled at least halftime in one of the first two years of post-secondary education and who is enrolled in a program leading to a degree, certificate, or other recognized educational credential. The amount that may be claimed as a credit is generally equal to: (1) 100 percent of the first $1,000 of the taxpayer's out-of-pocket expenses for each student's qualified tuition and related expenses, plus (2) 50 percent of the next $ 1,000 of the taxpayer's out-of-pocket expenses for each student's qualified tuition and related expenses. Thus, the maximum credit a taxpayer may claim for a taxable year is $1,500 multiplied by the number of students in the family who meet the enrollment criteria described above.

The amount a taxpayer may claim as a HOPE Scholarship Credit is gradually reduced for taxpayers who have modified adjusted gross income between $40,000 ($80,000 for married taxpayers filing jointly) and $50,000 ($100,000 for married taxpayers filing jointly). Taxpayers with modified adjusted gross income over $50,000 ($100,000 for married taxpayers filing jointly) may not claim the HOPE Scholarship Credit. Both the dollar limitation on the expenses for which the credit may be claimed and the modified adjusted gross income limitation will be indexed for inflation in 2002 and years thereafter.

The HOPE Scholarship Credit for 2001 is based on the amount of qualified expenses paid for the student in 2001 for academic periods beginning in 2001 and the first three months of 2002.

2. Lifetime Learning Credit

Beginning on July 1, 1998, taxpayers may be eligible to claim a nonrefundable Lifetime Learning Credit against their federal income taxes. The Lifetime Learning Credit may be claimed for the qualified tuition and related expenses of the students in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent) who are enrolled in eligible educational institutions. Through 2002, the amount that may be claimed as a credit is equal to 20 percent of the taxpayer's first $5,000 of out- of-pocket qualified tuition and related expenses for all the students in the family. After 2002, the credit amount is equal to 20 percent of the taxpayer's first $10,000 of out-of-pocket qualified tuition and related expenses. Thus, the maximum credit a taxpayer may claim for a taxable year is $ 1,000 through 2002 and $2,000 thereafter. These amounts are not indexed for inflation.

If the taxpayer is claiming a HOPE Scholarship Credit for a particular student, none of that student's expenses for that year may be applied toward the Lifetime Learning Credit. The amount a taxpayer may claim as a Lifetime Learning Credit is gradually reduced for taxpayers who have modified adjusted gross income between $40,000 ($80,000 for married taxpayers filing jointly) and $50,000 ($ 100,000 for married taxpayers filing jointly). Taxpayers with modified adjusted gross income over $50,000 ($100,000 for married taxpayers filing jointly) may not claim a Lifetime Learning Credit. The modified adjusted gross income limitation will be indexed for inflation in 2002 and years thereafter. The definition of modified adjusted gross income is the same as it is for purposes of the HOPE Scholarship Credit.

The Lifetime Learning Credit for 2001 is based on the amount of qualified expenses paid for the student in 2001 for academic periods beginning in 2001 and the first three months of 2002.

3. Student Loan Interest Deduction

Beginning January 1, 1998, taxpayers who have taken loans to pay the cost of attending an eligible educational institution for themselves, their spouse, or their dependent(s) generally may deduct interest they pay on these student loans. The maximum deduction each taxpayer is permitted to take increases from $1,000 in 1998 to $2,500 in 2001 and thereafter. The following table summarizes the yearly increases.

Year		Maximum Deduction
1998		$1,000
1999		$1,500
2000		$2,000
2001 and thereafter		$2,500