If you're paying for educational expenses for yourself or another eligible student, the IRS offers several tax credits and deductions to offset some of the cost. For example, taxpayers can claim the Hope Credit for up to $2,500 of tuition and fee costs during the first four years of post-secondary study. If you purchased savings bonds for education purposes, you can also deduct any interest they may have earned from your taxable income.
Hope Credit Eligibility
To claim the Hope Credit, you must have paid qualified education expenses for an eligible student who is enrolled at least half-time in an undergraduate degree program. The eligible student may be you, your spouse or another dependent. As of 2011, IRS rules prevent you from claiming the Hope Credit if you are married filing separately, if someone else claims you as a dependent on their tax returns or if your modified adjusted gross income is $90,000 for single filers or $180,000 for joint filers.
Claiming the Savings Bond Deduction
To qualify for the education savings bond deduction, you must have purchased series EE savings bonds issued after 1989 or series I bonds. You must have been at least 24 years old prior to the bond issue date and the bond must bear your name as owner. You must have paid qualified education expenses for yourself, your spouse or another dependent whom you claim on your tax return. You cannot claim the savings bond deduction if your filing status is married filing separately. As of 2011, your modified adjusted gross income could not exceed $85,100 for single filers or $135,100 for joint filers to claim the deduction.
Qualified Education Expenses
Both the Hope Credit and the savings bond deduction may only be applied to qualified education expenses. According to the IRS, this includes tuition, fees, books, supplies and equipment. You may also include the cost of a computer if one is required as a condition of attendance at your school. Room and board, transportation costs, insurance and medical costs are not included as qualified expenses. Qualified education expenses must be incurred at a college, university, vocational school or technical school that is eligible to participate in federal student aid programs.
You cannot claim the Hope Credit and the savings bond deduction in the same tax year for the same education expenses. You also cannot claim the Hope Credit in conjunction with the Lifetime Learning Credit. If you or your eligible student received scholarships or other tax-free educational assistance benefits, you must subtract these amounts from your total qualified education expenses prior to claiming a credit or deduction. You are not required to reduce the amount of your expenses if you receive education assistance in the form of loans, gifts or an inheritance.
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