A.  General rules

(1) Effective date: July 1, 1998

(2) Reminder: Since both the HOPE credit and the lifetime learning credit take effect in 1998, the credit will not show up on a tax return until 1999 when the 1998 return is filed

(3) Credit applies to eligible higher education costs of the taxpayer, the taxpayer's spouse, and the taxpayer's dependents (same class of people eligible for the HOPE credit)

(4) Credit applies to all the students in the taxpayer's family (i.e., on a per-family, not per-student basis as does the HOPE credit)

B.  Amount of Credit

(1) Credit is 20% of the first $5,000 of out-of-pocket qualified tuition and related expenses

(a) Beginning in 2002, the credit is 20% of the first $10,000 of such expenses

(b) Top credit is $1,000 through 2002 and $2,000 thereafter

(c) Credit will not be indexed for inflation as will the HOPE credit

(2) Credit is subject to the same MAGI limits that apply for the HOPE credit

(a) These limits will be indexed for inflation beginning in 2002

C.  Other rules

(1) Unlike the HOPE credit, students need not be enrolled at least halftime; even one course may give rise to a lifetime learning credit

(2) There is no limit on the number of years the credit can be taken

(a) While the HOPE credit applies only for the first two years of higher education, the lifetime learning credit can be taken even for graduate level courses

(3) Definition of qualified tuition and related expenses is the same for both credits

Estate Planning 

Tax Incentives for Saving for Higher Education

Qualified State Tution Programs

Education IRA's

Tax Incentives for Paying for Higher Education Expenses

Penalty-free IRA Withdrawals

 

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