The Hope credit, provided by 26 U.S.C. § 25A(b), is available to taxpayers who have incurred expenses related to the first two years of postsecondary education. For this credit to be claimed by a taxpayer, the student must attend school on at least a part-time basis. The credit can be claimed for education expenses incurred by the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent.
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This credit allows for the first $1,200 in “qualified tuition and related expenses,” as well as half of qualifying expenses between $1,200 and $2,400, to be fully creditable against the taxpayer’s total tax liability. The maximum amount of the credit is $1,800 per eligible student. Students in a qualified Midwestern disaster area may receive up to $3,600.
Qualifying requirements
An eligible student must meet all of the following requirements to deduct the Hope credit:
“Qualified tuition and related expenses” is defined as “the tuition and fees paid at most colleges, universities, and any trade school for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer. These qualifying expenses do not include student activity fees, athletic fees, insurance costs, or room and board expenses.
Limitations
The Hope credit is subject to limitations. First, the credit will be lost if the student is convicted of a felony drug offense. Second, a taxpayer may not take both a Hope credit and a Lifetime Learning Credit or tuition and fees deduction for the same student in the same year. Third, a taxpayer may only take the credit during the first two years of post-secondary education. The credit amount is phased out gradually once a taxpayer’s modified adjusted gross income exceeds $50,000 ($100,000 if filing jointly) and the credit is phased out entirely once a taxpayer’s modified adjusted gross income exceeds $60,000 ($120,000 if filing jointly).
History
According to Paulsen and Smart, the federal Hope tax credit gets its name from Georgia's merit-based scholarship program of the same name, HOPE (Helping Outstanding Pupils Educationally). Although the Georgia state scholarship is a merit scholarship, the tax credit is not.
The Georgia state lottery-funded HOPE Scholarship program (1993) pre-dates the federal tax credit (1998) by five years.