Here's some advice on how to use the Hope tax credit from the National Tax Advice Day Web site:
With the many expenses families face today, saving for college sometimes slips on the priority list. The Hope credit, worth up to $1,500 in tax savings for each qualifying student in the first two years of college or vocational school, can help cushion the financial blow of higher education.
Am I Eligible?
If your dependent child plans to attend college, you may use the Hope credit if he or she is:
•Enrolled in one of the first two years of post-secondary education - generally the freshman and sophomore years of college;
•Enrolled in a program that leads to a degree, certificate or other recognized educational credential;
•Taking at least one-half the normal full-time workload for his or her study course during at least one 2005 academic period; and
•Free of felony convictions for the possession or sale of illegal substances.
Income is also a factor in Hope credit eligibility. If you're single, the Hope credit is phased out as your Adjusted Gross Income (AGI) reaches $43,000 and completely disappears at $53,000. If you're married and file jointly, the AGI phase-out range lies between $87,000 and $107,000. Taxpayers who file using the married filing separately status cannot take advantage of the credit.
How Much Can the Hope Credit Help Me?
As an eligible individual, you may claim the Hope credit for 100 percent of the first $1,000 and 50 percent of the next $1,000 of qualified expenses, which include tuition, fees and required books. Because this is a per-student limit, not a per-return limit, the maximum Hope credit you may claim for 2005 is $1,500 times the number of eligible students claimed on your tax return.
Using the Credit Wisely
The Hope credit is nonrefundable, so if your credit exceeds your tax, the difference isn't refunded to you. On the other hand, the credit can also be used for prepaid expenses, such as tuition paid in December for January classes. This feature may be especially useful for students whose books and tuition fees fluctuate from semester to semester.
Multiple Student Households
If you and other qualifying individuals are all planning to take classes, the Hope credit and the lifetime learning credit can be used together. And although you can't claim both credits for the same expenses - or even the same student - you can claim a Hope credit for each qualifying student and a lifetime learning credit for a different student's qualifying expenses. The cost of education has never been higher, but with careful planning the Hope credit can keep college within reach.
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