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How Does the Hope Credit Work?

Qualifying

To qualify for the Hope credit the household must have an eligible student attending an eligible educational institution at least half time in pursuit of a degree; pay the qualified education expenses; list the student as either the taxpayer, spouse or dependent on the tax return; and, new for 2009, would have at least one student attending an educational institution in a Midwestern disaster area.

Restrictions

In order to claim the Hope credit, another education credit cannot be claimed for the same student in the same tax year. In addition, all students on the return must claim the same credit. For example, one student's expenses cannot be used to claim the Hope credit while another's is used for the American Opportunity credit.

Additionally, the family's modified adjusted gross income must fall below $120,000 for married filing jointly and $60,000 for single, head of household or qualifying widow(er). The credit cannot be claimed if married filing separately.

Also, the Hope credit only can be claimed for the first two years of college and for no more than two years per student.

Eligibility

According to the IRS, a student is considered eligible for the Hope credit if the student has not already completed the first two years of college, was enrolled at least half time for at least one period in the tax year, is pursuing a degree, has not claimed the credit twice previously and has not had a felony drug conviction.

In addition, the student for whom the credit is claimed must attend a university, college or other higher education institution that is qualified for participation in U.S. Department of Education's federal student aid programs.

Qualified Expenses

Tuition and any expense that is required for enrollment at the student's institution are considered qualified expenses for the Hope credit. This could include books, supplies and fees, but only if they are required for enrollment. Students attending schools in Midwestern disaster areas also were allowed to claim room and board expenses that are charged by the eligible school.

Calculating

Students in Midwestern disaster areas, could add 100 percent of the first $2,400 of the student's qualified expenses to 50 percent of the next $2,400 of qualified expenses.

Other students could calculate the credit by adding together 100 percent of the first $1,200 to 50 percent of the next $1,200 of qualified expenses.

The maximum credit that could be claimed was $1,800 per student or $3,600 per student attending college in Midwestern disaster areas.

Claiming

To claim the Hope credit on a tax return, fill out IRS Form 8863 to calculate the credit. Insert the amount of the credit on the designated line on Form 1040 or 1040A, complete the tax return and submit to the IRS.

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