DEDUCTION FOR HIGHER LEARNING

You may be able to deduct up to $4,000 for qualified tuition and related expenses paid during the year for yourself, your spouse, or a dependent, even if you do not itemize deductions on Schedule A, Form 1040. This deduction is an adjustment to income. The deduction is phased out for taxpayers with certain adjusted gross incomes. You may not deduct any amount for qualified tuition and related expenses for a year if:

• A Hope Scholarship Credit or Lifetime Learning Credit is claimed with respect to expenses of the individual for whom tuition and related expenses were paid.  -or-
• You deduct the expense under any other provision of the law.

** Go to http://www.irs.gov/publications/p970/ch06.html#d0e5873 for complete instructions.

HOPE SCHOLARSHIP CREDIT

The Hope Scholarship Credit (up to $1,650) is a tax credit available only for the first two years of college or post-secondary education. It applies to each eligible student's qualified tuition and related expenses. An individual paying qualified tuition and related expenses at a post-secondary educational institution may claim the credit, provided the student, whose expenses are being paid, and the institution both meet certain eligibility requirements.

• The student must be enrolled in a program that leads to a degree, certificate, or other recognized educational credential.
• The student must be attending school at least half-time in a course of study for at least one academic period beginning during the calendar year.

** Go to http://www.irs.gov/pub/irs-pdf/f8863.pdf to download the form and instructions for this deduction.

LIFETIME LEARNING CREDIT

The Lifetime Learning Credit (up to $2,000) is targeted to college juniors and seniors, graduate and professional degree students and adults who want to return to school to update their skills or change careers.

• Unlike the Hope Scholarship Credit, the Lifetime Learning Credit does not require students to be in their first two years of post-secondary study and does not require at least half-time enrollment.
• An individual paying qualified tuition and related expenses at a post-secondary educational institution may claim the credit, provided the institution is an eligible educational institution.
• Only out-of-pocket expenses can be considered. Qualified expenses that are paid with the Federal Pell Grant or other tax-free employer-provided education assistance cannot be used in calculating this tax credit. During the same year, a student's expenses may not be claimed for both the Hope Scholarship Credit and the Lifetime Learning Credit.
• There is no limit to the number of years for which the Lifetime Learning Credit may be claimed for any student.

** Go to http://www.irs.gov/pub/irs-pdf/f8863.pdf to download the form and instructions for this deduction.

STUDENT LOAN INTEREST DEDUCTION

Parents and students who paid interest on qualified education loans and who meet the income qualifications may be able to use this deduction of up to $2,500.

Eligible loans

A qualified education loan is a loan that must have been used to pay the costs of attendance at an eligible educational institution for a student enrolled at lease half-time in a program leading to a degree, certificate, or other recognized educational credential. Eligible loans include:

• Federal Stafford Loan
• Federal PLUS Loans
• Federal and Direct Consolidation Loans
• Federal Perkins Loans
• Loans issued under the federal loan programs for health care professionals
• Loans issued by banks and other private lenders that are designated as being used for qualified educational purposes
• Loans issued to the student or parent by school

How to qualify

The deduction is taken as an adjustment to income, so you may be able to take the deduction even if you don't itemize deductions on Schedule A of your 1040.

• Taxpayers with adjusted gross income above certain thresholds would not be entitled to a deduction.
• Taxpayers who are married but file separate returns are not eligible.
• The Student Loan Interest Deduction is available for interest payments due and made on or after January 1, 1998.
• A dependent student may not claim the interest deduction for student loan interest. Once the student is independent he or she may take the interest deduction.

A taxpayer may not have to itemize deductions to claim the Student Loan Interest Deduction. The Student Loan Interest Deduction is available regardless of whether an individual elects to take the standard deduction or to itemize deductions. Instructions accompanying tax forms will explain how to compute and claim the deduction. Taxpayers may not be eligible to claim the interest deduction and a Hope Scholarship or Lifetime Learning Credit in the same year with respect to the same student.

For complete information and instructions please go to www.irs.gov/publications/p970/index.html. 
Call the IRS information line at 800-829-1014 or log on www.irs.gov.