How to Calculate a Hope Tax Credit
Pages and pages of rules and regulations are produced by the Internal Revenue Service each year regarding credits and deductions you may or may not be able to take when filing your tax return. The Hope Credit (or now the American Opportunity Tax credit) is one of these. If you paid tuition for classes you took at an eligible educational facility, you may be able to qualify for this credit. Generally, the Hope Credit covers up to $2,500 of qualifying expenses, but use the steps below to determine your individual status.
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Things You'll Need
- IRS Form 1040
- IRS Form 8863
- IRS Publication 970
- IRS Form 1098-T from educational facilities
- Educational expense receipts
Instructions
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1
Check your records to make sure you qualify for the Hope Credit. You must have paid tuition for post-high school classes for yourself, your spouse or your dependent for whom you claim an exemption on your taxes. The student for whom you paid tuition must have been "eligible." For example, in order for a student to qualify for the 2008 tax year, he or she must have been at least a half-time student for each semester (fall and spring) of 2008, and not have had any convictions for illegal substances between January 1 and December 31, 2008. The credit also cannot have been claimed for this student more than once previously.
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Make sure you (the person claiming the credit) did not have a filing status of "married filing separately" and are not listed as a dependent on someone else's return. Your adjusted gross income must also be under a certain amount, which changes regularly. (For the current amount, see Publication 970 referenced below).
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Fill in all requested information on form 8863 using the information from Form 1098T and your receipts. Be careful to fill out the correct section. Part I and II differ based on the area of schooling, and Part III is for claiming the Lifetime Learning Credit.
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Follow the directions to calculate the amounts for each line of section IV and V of Form 8863. Read each step thoroughly and double-check your math.
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Transfer the final amount from box 29 of Form 8863 to box 49 of Form 1040. Continue to complete the return as normal.
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Tips & Warnings
The general rules for claiming the Hope Credit are above. However, for tax years 2009 and 2010, the government created the American Opportunity Tax Credit, most likely with the intent to phase out the Hope Credit. This modifies the two-time limit to four. It also changes the Adjusted Gross Income necessary for qualification. Read the directions in form 970 before filling out form 8863.
Some scholarships, grants and other tax-free funds don't qualify as expenses. Some expenses, while they may have been for educational purposes--such as dormitory expenses--do not qualify for the credit. A complete list of non-qualifying expenses is available on page 13 of Form 970. For answers to other specific questions, consult a tax professional.
