*UMass Boston is unable to provide tax advice. We recommend that you consult a tax professional or call IRS Telephone Assistance Hotline at 800-829-1040.
The Taxpayer Relief Act of 1997 encourages postsecondary and continuing education by providing tax benefits to students and their families. Qualified taxpayers may claim a tax credit on their federal income tax liability for tuition paid or may take a deduction for interest paid on educational loans.
NOTE: This information describes the new tax benefits in general terms. Your ability to claim these tax benefits depends on your individual circumstances. We recommend that you consult a tax advisor to determine your personal eligibility.
1. What is the Hope Scholarship Credit?
The Hope Scholarship is a tax credit available for the first two years of college or postsecondary education. Beginning in 1998, it will be offered to students or parents who pay tuition and related expenses for attendance at least half-time in a degree-granting program. Unlike a scholarship or a tax deduction, the Hope Scholarship is a tax credit, and can be subtracted directly from the total federal tax on a tax return. For more detailed information regarding the Hope Scholarship please contact: http://www.irs.gov.
2. How much tax credit is available with the Hope Scholarship?
The amount of the credit depends of the taxpayer's income and the amount of tuition paid. In 1998, the credit can total up to $1,500 per student for eligible taxpayers with modified adjusted gross incomes up to $40,000 (or $80,000 for married couples filing jointly). The credit is gradually reduced for taxpayers with incomes between $40,000 and $50,000 (or between $80,000 and $100,000 for married couples filing jointly). Taxpayers with incomes greater than $50,000 (or $100,000 for married couples filing jointly) may not claim the deduction.
3. Are parents eligible for the Hope Scholarship?
An eligible parent may claim the credit only for the tuition of a dependent child. Generally, a parent may claim his/her unmarried child as a dependent on a tax return if: (1) the parent supplies more than half the child's support for the taxable year and (2) the child is under 19 or is a full-time student under age 24.
4. When do I file for the Hope Scholarship?
Eligible parents or students request the Hope Scholarship credit on their tax returns when filing their 1998 tax returns (usually filed by April 15, 1999). Tuition paid in 1998 for classes begun in 1998 will qualify for the tax credit. Tuition paid in 1997 does not qualify.
5. I paid tuition, but also received financial aid. Does this affect my eligibility?
Tuition paid out-of-pocket using cash, credit card or check is eligible. Tuition paid with proceeds from a loan, including Federal Stafford and PLUS loans, is also eligible.
6. What happens in the student's third year and beyond? What is the Lifetime Learning Credit?
Beginning in July 1998, the Lifetime Learning Credit provides a tax credit to parents and/or students of up to 20% of the first $5,000 of total annual educational expenses, up to $1,000 annually. The income restrictions described above for the Hope Scholarship also apply to the Lifetime Learning Credit. Unlike the Hope Scholarship, the Lifetime Learning Credit does not require students to be in their first two years of study and does not require at least half-time enrollment. Taxpayers may not claim both the Hope Scholarship Credit and the Lifetime Learning Credit for the same student in the same tax year. For more detailed information regarding the Lifetime Learning Credit please contact: http://www.irs.gov.
7. What is the new tax benefit for interest paid on educational loans?
The interest paid in 1998 and beyond on qualified educational loans may be deductible from taxpayer income. Both student and parent loans are eligible. Interest can be taken as a tax deduction from gross income during the first 60 months (5 years) of repayment on the loan. The deduction is available even if the taxpayer does not itemize deductions on Schedule A.
8. How much can I deduct for educational loan interest? Can I deduct my full loan payments for the year?
In 1998, the maximum deduction for interest paid on educational loans is $1,000. This amount will increase in 1998 through 2001 in $500 increments. Only the interest portion of payments is deductible. Principal repayment is not deductible. Your lender will provide annual statements of interest paid.
9. Who can qualify for a student loan interest deduction?
Eligible taxpayers with incomes below $40,000 (or $60,000 for married taxpayers filing jointly) may take the full deduction. The eligible deduction is gradually reduced for eligible taxpayers with incomes between $40,000 and $55,000 (or between $60,000 and $75,000 for married taxpayers filing jointly).
10. What is the American Opportunity tax credit?
The American Opportunity Credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. The new credit is worth up to $2,500 of the cost of tuition and related expenses. The credit amount starts phasing out if you make more than $80,000 or $160,000 if you're filing a joint return. Students and parents are urged to save their receipts and cancelled checks in anticipation of claiming this credit on their 2009 tax returns. For more information, see IRS publication 970, tax benefits for Education or visit the IRS website.