What Was Hope Credit?
The Hope Benefit, or Hope Scholarship Tax Credit, was a nonrefundable education tax benefit for qualifying American taxpayers. Qualified students might claim this tax credit for their first two years of postsecondary study. Hope and other lifelong learning credits aim to promote higher education and reimburse parents and students for college tuition and fees. In 2009, the American Opportunity Tax Credit (AOTC) replaced the Hope Credit.
Hope Credit Basics
The Hope Credit was one of two nonrefundable education credits for taxpayers. I hope credit recipients can use it for tuition, fees, and books. The Hope Credit does not cover lodging, medical, or insurance. The student who incurred costs may have been the taxpayer, spouse, or dependent.
Additional credit available: lifetime learning credit, incompatible with hope credit.
Hope became part of the American Opportunity Tax Credit in 2009.
AOTC credits max out at $2,500 in 2022. Anyone with eligible educational expenditures can receive a credit. Qualifying educational costs include tuition and fees. Parents who pay tuition and fees for their children can claim a tax credit, subject to income limitations.
The American Opportunity Tax Credit enlarged the Hope Credit and made part of it refundable. If the credit reduces the taxpayer’s tax liability to zero, they can get 40% of the leftover credit (up to $1,000) back.
Considerations: Education Tax Credits
ARRA enhanced the Hope Credit in 2009. This made credit more available to parents and students. The Hope Credit is now available to more people through the American Opportunity Tax Credit. The AOTC expanded Hope Credit eligibility to higher-income and tax-free taxpayers. This tax applies to persons with a modified adjusted gross income (MAGI) of $80,000 or less ($160,000 for joint filers).
The IRS qualifies students who attend a recognized postsecondary institution at least part-time for one academic year. By the end of the tax year, students must not have been convicted of any felony drug charge while enrolled in courses leading to a degree or recognized certification.
For four years of postsecondary education, taxpayers can claim the credit to lower tuition and other qualified expenses. The IRS definition of qualifying educational cost includes tuition, books, materials, and equipment purchased from outside sources. Student loans are eligible for these fees, but scholarships, grants, and 529 savings plans are not.
Conclusion
- Students who qualify for the Hope Credit receive a maximum income tax credit of $1,800 for the first two years of education.
- A taxpayer forfeits any remaining money from this nonrefundable tax credit, which can only decrease their liabilities to zero.
- Taxpayers have to meet family income and student enrollment standards to qualify.
- The American Opportunity Tax Credit replaced the Hope Credit in 2009.
