Education Tax Credits & Deductions

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Taxpayer Relief Act of 1997
Benefits Comparison

Hope Scholarship Tax Credit Lifetime Learning Credit Student Loan Interest Deduction
Who can a taxpayer claim a deduction for? Tax credit may be claimed for the taxpayer, the spouse, and/or dependents. Generally, taxpayers can deduct interest they pay on eligible student loans for themselves, their spouse and/or their dependents.
Educational Qualifications The student must be in the first two years of postsecondary study. The student must be enrolled in an undergraduate, graduate, or professional study.
Enrollment Qualifications The student must be enrolled at least half-time in a program leading to a recognized degree or certification. The student must be enrolled in at least one postsecondary course. The taxpayer can deduct interest from loans that were used to pay expenses when the student was enrolled at least half-time.
Effective Date The taxpayer may claim qualified expenses that were paid on or after January 1, 1998, for academic periods beginning on or after January 1, 1998. The taxpayer may claim qualified expenses that were paid on or after July 1, 1998, for academic periods beginning on or after July 1, 1998. Beginning January 1, 1998 taxpayers may deduct the first 60 months interest payments that are required on an eligible loan.
Qualified Expenses Tuition and related fees, but not books, room, board, insurance, transportation, or other similar personal living or family expenses. Tuition and fees, room, board, books, supplies, and other necessary expenses.
Income Qualifications The amount a taxpayer can claim is gradually reduced when their modified adjusted gross income is between $40,000 and $50,000 ($80,000 - $100,000 for married taxpayers filing jointly).   Taxpayers with a modified adjusted gross income over $50,000 (over $100,000 for married taxpayers filing jointly), are not eligible to claim these tax credits. The deductible amount is gradually reduced for taxpayers with a modified adjusted gross income between $40,000 and $55,000 ($60,000 - $75,000 for married taxpayers filing jointly).  Taxpayers with a modified adjusted gross income above these amounts may not claim this interest deduction.
Calculation of Benefits The taxpayer may claim 100% of the first $1,000 and 50% of the next $1,000 of qualified expenses, with a maximum of $1,500 per student.  Calculation of this tax credit will be indexed for inflation in the year 2002. The taxpayer may claim 20% of the first $5,000 of qualified expenses, with a maximum of $1,000 per family. This credit will be raised to 20% of the first $10,000 of qualified expenses in the year 2002. The maximum deduction for each taxpayer is:

$1,000 in 1998
$1,500 in 1999
$2,000 in 2000
$2,500 in 2001+

Limitations A taxpayer can claim only "out-of-pocket" expenses.  Qualified expenses paid with grants, tax-free scholarships, tax-free distribution from an Education IRA, or tax-free employer-provided educational assistance cannot be used in calculating this credit.

Credit cannot be claimed for both the Hope Scholarship Tax Credit and the Lifetime learning Tax Credit in the same tax year.

A taxpayer may not claim this deduction during any tax year he/she is claimed as a dependent by another taxpayer.