TAX CREDITS
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The Taxpayer Relief Act of 1997 provides a number of tax benefits
for students and their families paying for educational costs. These
benefits include education tax credits, a new education IRA, withdrawals
from traditional IRAs for education expenses and a deduction for
student loan interest. The following information will help you determine
which benefits apply to you and your family so that you can plan
for your federal income tax return. |
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Check this site for the most recent IRS page of Education Tax Credits.
The
Lyme
Academy
has provided the following information as a general overview only.
Please
check with a certified accountant or your tax professional
for current updates.
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HOPE Scholarship |
| During the first two years of post-secondary education, students
or parents can take a Hope Scholarship tax credit of up to $1,650
per student per year for tuition & related expenses. The tax
credit may be used only with enrollment to an institution that participates in the U.S. Department of
Education student aid programs. To qualify, the student must have
earned a high school diploma or equivalent degree, be enrolled at
least half-time for one academic period during the tax year, and
must not have been convicted of a federal or state drug felony.
The Scholarship is available to individuals with modified
adjusted gross income (AGI) under $47,000 (phasing out between
$47,000 & $57,000), or under $94,000 for joint filers
(phasing out between $94,000 & $114,000). Eligible family
members include the taxpayer, the taxpayer’s spouse and the
taxpayer’s dependent(s). You cannot combine the Hope Scholarship
Credit with the Lifetime Learning Credit or the Education
IRA in the same year for the same child.
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LIFETIME LEARNING CREDIT (LLC) |
Taxpayers can receive a tax credit up to $2,000 per return for qualified tuition and expenses. Expenses
that qualify are tuition and fees for undergraduate, graduate or
professional degree courses for students enrolled at least half time
in a degree or certificate program. Tuition and fees for courses
at an eligible institution to acquire or improve job skills are also
eligible, even if the student is enrolled on a less than half-time
basis.
Lifetime Learning Credit is available to individuals with modified adjusted
gross income (AGI) up to $47,000 (phasing out between $47,000 and $57,000),
or up to $94,000 for joint filers (phasing out between $94,000 and $1114,000).
Eligible family members include the taxpayer, their spouse and the taxpayer’s
dependent(s). Educational expenses are eligible for credit for an unlimited number
of tax years.
You cannot combine the Hope Scholarship Credit with the Lifetime
Learning Credit or the Education IRA in the same year for the same
child.
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IRA Withdrawals |
| IRA withdrawals before age 59 1/2 are now allowed without early
withdrawal penalty, if, funds are to be used for education expenses
for academic periods beginning on or after January 1, 1998 . There are no income
requirements. IRA withdrawals may be used for yourself, your spouse
or any child or grandchild of either individual. |
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Education IRAs |
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Qualified taxpayers will be able to establish Education IRAs and
contribute up to $500 nondeductible per calendar year for each
designated beneficiary under age 18. The beneficiary need not be
your dependent child.
IRA withdrawals are tax-free and penalty-free, as long as moneys are
used for qualified education expenses. The Education IRA contribution
maximum of $500 per year is in addition to the current $2,000 annual
standard or Roth IRA contribution amount. You may not contribute to an
Education IRA if, during the same tax year, you have made contributions
to a qualified state pre-paid tuition program for the same beneficiary.
The tax credit is available for individuals with modified AGI
under $95,000 (phasing out between $95,000 & $110,000) and
joint filers with modified AGI under $150,000 (phasing out between
$150,000 & $160,000). You cannot combine the Hope Scholarship
Credit with the Lifetime Learning Credit or the Education IRA in
the same year for the same child.
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STUDENT
LOAN INTEREST DEDUCTIONS |
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The tax credit for 2007 is available for individuals with modified AGI under $55,000
(phasing out between $55,000 and $70,000) and joint filers with modified AGI under $110,000 (phasing out between $110,000 and $140,000).
The student loan interest deduction is taken as an adjustment to
income, which means you can claim this deduction even if you do not
itemize deductions on Schedule A (form 1040)
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