Hope/Lifetime learning credits
CCPaquin
for student's freshman and sophmore years. The lifetime
learning credit, while less generous, can be used when the
hope credit ends. But you can't take both credits for the
same student in the same year.
So what if a student finishes his sophmore year in the
spring of 1998, then begins his junior year in the fall of
1998? Do you compute the hope credit based only the
sophmore expenses, then compute the lifetime learning credit
based on the entire 1998 expenses, and take whichever credit
is larger?
Claude
Drewremedy
NOT a tax expert/not legal advice:
I understand your question and look forward to seeing
knowledgable answers.
The college year does not follow the tax year. Some but not
all colleges have tuned into the tax changes. For example
when the law first came out, many colleges still insisted on
being paid in December not January and a few surcharged kids
for the privledge of getting bill into proper tax year.
Nice!
My take on the tax language is that it covers the first two
academic years of post seconday education. It cannot be
carried forward or backwards. By careful timing of how one
pays ones bills it seems to me that it could cover 3 tax
years if you delay payment until spring of sophomore year
for the last term under that portion of IRC.
My reading says you cannot take two credits at once. But
since for many people ones last year of the Hope elgibility
occurs in the same tax year as ones other elgibiity for
lifetime credits, ie sophmore and junior, one reading would
be Hope for the sophmore and lifetime for the junior, all in
the same year. Obviously you are not taking two credits for
the same thing. But I don't think that's how its meant.
You get just one credit in any one tax year.
My guess is that when you do the math, and in light of fact
that Hope is not flexible, the Hope will work out better if
it is open to you and save the lifetime for next year and
beyond.
If you are at a very low cost instuition or have a lot of
grant aid you may have to juggle some bills just to get
enough into the right tax year for credit purposes. Same
problem when it comes to spring of Senior/last year. If you
pay in Dec you are SOL.
PS when you paid may mean when the loan obligation occurred
or it was credited if you don't pay directly. Its NOT when
you pay off the loan, thats another issue.
I seriously doubt if the IRS wants the hassle of sorting out
if a loan obligation you made in 1998 but actually paid to
the instuition in 1999 is a 98 or a 99 tax matter on your
personal return.
How if some sage is smart enough to tell me what happens in
the real world to somebody who started some of their post
secondary education under prior law.
Does it mean a strict intrepretation that anyone who had say
two years of something post high school under old law
sometime back is NOT elgible for the HOPE credit or does it
mean a liberal intrepretation that people going on post
secondary are elgible for up to two years of HOPE credit
under current law.
Anyone???
Greg Chilcote
paid beginning January 1, 1998. It does not apply only to
Freshman and Sophomores in college. Nor is it applied to
school years (Sept to Aug) but tax years (Jan to Dec). My
understanding of the law is that the HOPE credit is allowed
for up to 2 years of qualified educational expenses. These
could be any two years and need not be consecutive. Also
the HOPE credit is applied on a per student basis whereas
the Lifetime Learning Credit is limited based on a per
return basis (no matter how many students you have it would
be limited to the maximum amount of $1,000). The Lifetime
Learning Credit is applicable to expenses paid after June
30, 1998 for academic periods beginning after that date.
Also, both credits are phased out for modified AGI's
beginning at $40,000 for Single or Head of Household and
$80,000 for Married Filing Jointly and are completely phased
out at $50,000 and $100,000, respectively. Neither credit
can be taken by a taxpayer who is filing a Married filing
separately return.
So to answer your question. The entire amount paid for
qualified tuition and related expenses during 1998 could be
taken into account for calculating the HOPE credit. Only
the amount paid for the fall semester (assuming it was paid
after June 30, 1998) could be taken into account for the
Lifetime Learning Credit. IMHO, the HOPE credit is your
best choice for 1998, assuming there are no other factors
which would limit this or that you have not reached the
phase-out limits.
Greg Chilcote, CPA (NV)
IAN
> The HOPE tax credit is new this year and applies to amounts
> paid beginning January 1, 1998. It does not apply only to
> Freshman and Sophomores in college. Nor is it applied to
> school years (Sept to Aug) but tax years (Jan to Dec). My
> understanding of the law is that the HOPE credit is allowed
> for up to 2 years of qualified educational expenses. These
> could be any two years and need not be consecutive. .........
I believe the above is incorrect. The hope credit applies to
an eligible studnet enrolled in the first or second year of
college or other postsecondary instituion.
Ian Alper
A.G. Kalman
> My understanding is that the hope credit can be claimed only
> for student's freshman and sophmore years. The lifetime
> learning credit, while less generous, can be used when the
> hope credit ends. But you can't take both credits for the
> same student in the same year.
>
> So what if a student finishes his sophmore year in the
> spring of 1998, then begins his junior year in the fall of
> 1998? Do you compute the hope credit based only the
> sophmore expenses, then compute the lifetime learning credit
> based on the entire 1998 expenses, and take whichever credit
> is larger?
I know of nothing in the tax law that precludes one from
taking both credits in the same year as long as one
qualifies for taking the credits. You are not allowed to
use the same expenses to qualify for the Hope and the
Lifetime Learning Credit. You may have confused this issue
with the Education IRA. If you take a distribution from an
Education IRA you would be precluded from taking either the
Hope or Lifetime Learning Credit.
The IRS issued Notice 97-60 that explains all the Education
Incentives quite well. You can get a PDF formatted copy
on-line from:
ftp://ftp.fedworld.gov/pub/irs-utl/not97-60.pdf
or in HTML format from:
http://www.irs.ustreas.gov/plain/hot/not97-60.html
--
Alan
My home page provides a variety of help and
information on tax related subjects.
http://pages.prodigy.net/agkalman/
Edward Zollars
> I believe the above is incorrect. The hope credit applies to
> an eligible studnet enrolled in the first or second year of
> college or other postsecondary instituion.
The law has two tests. First, you can only claim the credit
in two tax years. Second, it doesn't apply once you've
completed "the first two years" at the educational
institution. What that last term means is a bit of an
issue, however there is at least some flexibiliity in the
"normal" case where a student starts college in the fall
semester.
For instance, if a student started college in the fall of
1998 and made "normal progress" from then forward, the HOPE
credit could be claimed any two of the following three
years:
1998
1999
2000
The test for completing the two years of education is made
at the *beginning* of the tax year in question--so the fact
the two years are completed *during* 2000 won't disqualify
that year.
Ed Zollars, CPA (AZ)
ezo...@primenet.com
http://www.getnet.com/~hmtzcpas
Greg Chilcote
to the first two years of education at a post-secondary
institution as further defined from IRS publication 970 as
follows:
Additional qualifications for the Hope credit. You can claim
a Hope credit only for an eligible student (defined earlier)
who also meets the following requirements:
1.. Is enrolled in one of the first two years of
post-secondary education (generally, the freshman or
sophomore years of college),
2.. Is enrolled in a program that leads to a degree,
certificate, or other recognized educational
credential,
3.. Is taking at least one-half of the normal full-time
work load for his or her course of study for at least
one academic period beginning during the calendar
year, and
4.. Is free of any felony conviction for possessing or
distributing a controlled substance.
The complete pub can be found at
http://www.irs.ustreas.gov/prod/forms_pubs/pubs/p97001.htm
The information I had reviewed to answer the question (a
continuing Ed class manual) left out this very important bit
of information.
Art Kamlet
> I know of nothing in the tax law that precludes one from
> taking both credits in the same year as long as one
> qualifies for taking the credits.
I don't have a cite but the instructions for the
hope/lifetime education credits clearly say you cannot claim
both a hope and a lifetime for the same person for the same
year.
And as others have noted here, the hope is for only two
years for a given person.
> You are not allowed to
> use the same expenses to qualify for the Hope and the
> Lifetime Learning Credit. You may have confused this issue
> with the Education IRA. If you take a distribution from an
> Education IRA you would be precluded from taking either the
> Hope or Lifetime Learning Credit.
I thought if you took the IRA distribution and elected not
to declare that distrribution as taxable income, then you
couldn';t claim the hope/lifetime.
But if you take the education IRA distribution and declare
it as income, you can take the credit (and might benefit by
doing so.)
And what about the screams from people who established
Education IRAs anticipating they could use it as advertised,
only to find out it is not a good thing to do now? Too
bad.
--
Art Kamlet Columbus, Ohio kam...@infinet.com
A.G. Kalman
> I don't have a cite but the instructions for the
> hope/lifetime education credits clearly say you cannot claim
> both a hope and a lifetime for the same person for the same
> year.
You're gonna have to provide the cite because I can't find
it. I can only find the cite that states you can't use the
same expenditures to qualify for both the Hope & Lifetime
credit. If you think it through, it makes sense to qualify
for both as every college has students exiting their
sophomore year and entering their junior year in the same
tax year. Thus it is possible to have one set of
expenditures qualify for the Hope and the other set of
expenditures qualify for the Lifetime credit. Obviously,
a taxpayer would still have to meet all the other rules to
qualify to take a credit.
BBcBergman
Section 25A(c)(2)(A):
"The qualified tuition and related expenses with respect to
an individual who is an eligible student FOR WHOM A HOPE
SCHOLARSHIP CREDIT UNDER SUBSECTION (a)(1) IS ALLOWED for
the taxable year shall not be taken into account under this
subsection [i.e., for the Lifetime Learning Credit]."
As I read it, it does not say that only the expenses taken
into account for the Hope credit are disregarded for the
Lifetime Learning credit; it says that any expenses of
student for whom a Hope credit is taken are disregarded for
LLC.
> If you think it through, it makes sense to qualify
> for both as every college has students exiting their
> sophomore year and entering their junior year in the same
> tax year.
Yes, but in such a case (students finishing their sophomore
year in the spring and starting their junior year in the
fall), the Hope credit can still be used for ALL expenses
during that tax year , including those for the fall semester
(assuming the Hope credit hasn't already been claimed in 2
tax years for that student). See Section 25A(b)(2)(C): "The
Hope Scholarship Credit ... shall not be allowed ... if the
student has completed (BEFORE THE BEGINNING OF SUCH TAXABLE
YEAR) the first 2 years of postsecondary education...."
Drew Edmundson
> Art Kamlet wrote:
>> I don't have a cite but the instructions for the
>> hope/lifetime education credits clearly say you cannot claim
>> both a hope and a lifetime for the same person for the same
>> year.
> You're gonna have to provide the cite because I can't find
> it. I can only find the cite that states you can't use the
> same expenditures to qualify for both the Hope & Lifetime
> credit. If you think it through, it makes sense to qualify
> for both as every college has students exiting their
> sophomore year and entering their junior year in the same
> tax year. Thus it is possible to have one set of
> expenditures qualify for the Hope and the other set of
> expenditures qualify for the Lifetime credit. Obviously,
> a taxpayer would still have to meet all the other rules to
> qualify to take a credit.
I think the difference in interpretation comes from the way
25A(c)(2)(A) is written.
--- begin quoted text
(A) Coordination with hope scholarship-
The qualified tuition and related expenses with respect to
an individual who is an eligible student for whom a Hope
Scholarship Credit under subsection (a)(1) is allowed for
the taxable year shall not be taken into account under this
subsection.
end quoted text ---
The IRS reads (and RIA agrees with them) the phrase "the
qualified tuition ..." reads as though it says "all the
qualified tuition ..." I believe this is a valid
interpretation of the wording .
Note the following from the 1997 Blue Book:
--- begin quoted text
[60] Election of HOPE credit, Lifetime Learning credit, or
exclusion from gross income for certain distributions from
education IRAs. --For each taxable year, a taxpayer may
elect with respect to an eligible student the HOPE credit OR
the "Lifetime Learning" credit (described below), OR an
exclusion from gross income under section 530 for certain
distributions from an education IRA (described at A.4,
below).
end quoted text ---
Note that the capitalization of the "or" is in the Blue
Book, I did not add it.
Drew Edmundson, CPA (NC)
A.G. Kalman
> Art Kamlet wrote:
>> I don't have a cite but the instructions for the
>> hope/lifetime education credits clearly say you cannot claim
>> both a hope and a lifetime for the same person for the same
>> year.
> You're gonna have to provide the cite because I can't find
> it. I can only find the cite that states you can't use the
> same expenditures to qualify for both the Hope & Lifetime
> credit. If you think it through, it makes sense to qualify
> for both as every college has students exiting their
> sophomore year and entering their junior year in the same
> tax year. Thus it is possible to have one set of
> expenditures qualify for the Hope and the other set of
> expenditures qualify for the Lifetime credit. Obviously,
> a taxpayer would still have to meet all the other rules to
> qualify to take a credit.
I found the cite. You're right, I'm wrong. The explanation
is in the conference report. I am appending the words from
the Code followed by the words from the Conference Report.
Based upon the wording in the Conference Report, the words
from the Code which allow a taxpayer to take both credits...
only apply to different students.
The Code:
Sec 25A:
(a)In the case of an individual, there shall be allowed as a
credit against the tax imposed by this chapter for the
taxable year the amount equal to the sum of—
(1) the Hope Scholarship Credit, plus
(2) the Lifetime Learning Credit.
End Code:
Begin Conf. Report:
Election of Lifetime Learning credit, HOPE credit, or
exclusion from gross income for certain distributions from
education IRAs. -- A taxpayer may claim the Lifetime
Learning credit for a taxable year with respect to one or
more students, even though the taxpayer also claims a HOPE
credit (or claims an exclusion from gross income for certain
distributions from qualified State tuition programs or
education IRAs) for that same taxable year with respect to
other students. If, for a taxable year, a taxpayer claims a
HOPE credit with respect to a student (or claims an
exclusion for certain distributions from an education IRA
with respect to a student), then the Lifetime Learning
credit will not be available with respect to that same
student for that year (although the Lifetime Learning credit
may be available with respect to that same student for other
taxable years).
End Conf Report
A.G. Kalman
>> You're gonna have to provide the cite
> Section 25A(c)(2)(A):
>
> "The qualified tuition and related expenses with respect to
> an individual who is an eligible student FOR WHOM A HOPE
> SCHOLARSHIP CREDIT UNDER SUBSECTION (a)(1) IS ALLOWED for
> the taxable year shall not be taken into account under this
> subsection [i.e., for the Lifetime Learning Credit]."
>
> As I read it, it does not say that only the expenses taken
> into account for the Hope credit are disregarded for the
> Lifetime Learning credit; it says that any expenses of
> student for whom a Hope credit is taken are disregarded for
> LLC.
See my later response. The answer is in the conference
report.
--