Tax Breaks for Education

Thanks to education incentives passed by Congress, parents and students may offset part of higher education costs with tax credits and deductions, that can top $2,500. The rules are tricky, and taking one tax break may shut you out of another one, but they are still well worth a look.

Here is a quick tour of the rules plus some tips and traps. For more details, consult IRS Publication 970 (downloadable from the IRS Website:

Hope Scholarship and Lifetime Learning Credits

These two credits have received the most attention and are potentially the juiciest. The Hope Credit can be claimed for a student enrolled at least half time in the first or second year of college. The tax credit is 100 percent of the first $1,000 paid for tuition and fees and 50 percent of the next $1,000, for a maximum of $1,500.

The Lifetime Learning Credit takes over where the Hope leaves off, covering 20 percent of the first $5,000 (maximum $1,000) paid for tuition and fees for junior and senior years in college, graduate school and other job-related coursework.

Only the person who can claim the student as a dependent (or, in some cases, the student herself) can take the credits. Both credits phase out between $40,000 and $50,000 of income for singles and between $80,000 and $100,000 for joint filers. Married couples filing separately are not eligible.

A Hope Credit can be claimed for each eligible student, but the $1,000 maximum Lifetime Learning Credit applies to the whole household. If your twins are freshmen in college you can claim a Hope Credit for each, but when they reach junior year, you can claim only one Lifetime Learning Credit. And no double-dipping; both credits cannot be claimed for the same student in the same year.



  • Tip: You can pay the spring tuition bill in December in order to get a larger credit on your 1999 tax return.
  • Tip: The new tax credits can't be used for elementary or high school, but if you have a child under 17, check out the new child tax credit.
  • Tip: Divorced parents should plan for these credits. The parent who claims the child as a dependent is eligible for the credits even if someone else paid the tuition.
  • Trap: Only payments made for tuition and fees are eligible for the credit. If your child receives a scholarship for the tuition and you pay for room and board, you're out of luck.
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