Whatever happened to the Hope tax credit?

The Hope tax credit was a Clinton-era initiative that provided tuition assistance for middle-class Americans with a family member in college. For 2009 and 2010, the Obama administration replaced it with the American Opportunity (AO) tax credit, which expands the program, making more families eligible. Congress recently approved the extension of the AO credit for 2011 and 2012. There are significant differences between the Hope and AO credits.

 
The American Opportunity credit extends the benefit to students in the first four years of schooling, not just the first two. The maximum credit increased from $1,800 to $2,500, with 100 percent of the first $2,000 and 25 percent of the next $2,000 in qualified expenses being eligible. Further, the income restrictions have been nearly doubled, to $80,000 a year for single filers and $160,000 for those who file jointly. The new credit also allows 40 percent of the credit to be refunded to students or families paying less than $2,500 in federal tax. Thus, students who don’t pay taxes and aren’t claimed as a dependent by a parent are essentially eligible for a $1,000 tax refund.

The American Opportunity credit also broadens the definition of “qualified tuition and related expenses” to include the cost of course materials such as books, supplies, and other equipment necessary for enrollment or attendance.
 
Two thing remains the same: You can only claim one education tax credit per student per year, and those who are married but filing separately are not eligible at all.
 
Visit the IRS website for a copy of form 8863, which you can use to claim the credit with your 1040 or 1040A tax form, and for additional information.
 
/Michelle Boyles