What Was the Hope Credit?
The Hope Credit, sometimes known as the Hope Scholarship Tax Credit, was a nonrefundable education tax credit available to qualifying Americans. This tax credit was available to qualified students who had not completed four years of postsecondary education. 1
The Hope and other lifelong learning credits were introduced to promote higher education and to give some tuition reimbursement for parents (or students) who pay college tuition and fees.
In tax year 2009, the Hope Credit was replaced by the American Opportunity Tax Credit (AOTC).
- The Hope Credit provided qualifying students who had not completed four years of education with a $2,500 income tax credit.
- This was a nonrefundable tax credit that could only decrease a taxpayer’s burden to zero; any remaining credit amount was immediately lost by the taxpayer.
- To qualify, taxpayers have to meet eligibility standards such as family income levels and student enrollment status.
- The Hope credit was superseded by the American Opportunity Tax Credit in 2009.
The Basics of the Hope Credit
One of two nonrefundable education credits offered to taxpayers was the Hope Credit. Recipients may use the Hope Credit to pay for tuition and fees, as well as additional expenditures like books. The Hope Credit does not cover living expenditures, medical bills, or insurance. The student who incurred the costs might have been the taxpayer, spouse, or dependent. 2
The Lifetime Learning Credit is another eligible credit that may have been claimed after the Hope Credit was spent. 3
The Hope Credit was included into the American Opportunity Tax Credit in 2009. (AOTC).4
The maximum AOTC credit in 2021 was $2,500. An education credit may be claimed by anybody who incurs qualified educational costs. Tuition and fees are examples of qualifying educational costs. Subject to specific income constraints, parents who pay tuition and fees for their children may claim this form of credit on their tax returns. 5
A component of the Hope Credit became refundable when it was enlarged and renamed the American Opportunity Tax Credit. This implies that if the credit reduces the taxpayer’s tax liability to zero, they may have 40% of the leftover credit amount (up to $1,000) restored to them. 1
Special Considerations: Education Tax Credits
In 2009, the American Recovery and Reinvestment Act (ARRA) enhanced the Hope Credit. This increased the credit’s availability to parents and students. 6 More individuals are now eligible for the Hope Credit via the American Opportunity Tax Credit. The AOTC extended the Hope Credit to a larger spectrum of taxpayers, including those with higher earnings and those who owe no tax. Individuals having a modified adjusted gross income (MAGI) of $80,000 or less ($160,000 or less for joint filers) are eligible for the tax. 1
A student is considered eligible by the IRS if they are enrolled at a recognized postsecondary school at least part-time for at least one academic year. That student must have been enrolled at the school at the start of the tax year, working toward a degree or another recognized educational qualification, and not have been convicted of any felony drug violation by the conclusion of the tax year. 1
Taxpayers may use the credit to offset the costs of tuition and other qualified expenditures for up to four years of higher education. A eligible educational cost, according to the IRS, includes tuition paid to the school as well as expenses for books, materials, and equipment purchased from other sources. 2 These expenditures are deductible if taxpayers pay for them with student loans, but not if they pay for them with scholarships, grants, or monies from a 529 savings plan.
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