Federal Tax Incentives for Education-related Expenses
According to the Department of Education's Federal Student Aid page, the following are available this tax season for your consideration...

Hope Credit

• Tax credit is up to $1,500/year for each eligible student.
• 100% tax credit for the first $1,500 paid for qualified expenses. 50% tax credit for the second $1,000.
• You may claim Hope Credit for two years. Student must be in first or second year and enrolled at least half time for one period of the tax year.
• Covers tuition and fees.
• You qualify by paying tuition and fees for yourself (if independent), your spouse or your dependent child.
• Student activity fees, athletic fees and other expenses do not count toward your credit.
• Grants and scholarships will reduce the tuition and fees used to determine your credit.
• Eligibility decreases for Modified Adjusted Gross Incomes (MAGIs) between $43,000 - $53,000 (filing single) and $87,000 - $107,000 (filing jointly married). Can't claim MAGIs above these limits.
• You benefit from tax credits only to the extent you owe federal income tax. If you don't owe taxes, you won't receive a tax credit.
• No felony drug conviction on student's record.

Lifetime Learning Credit

• May claim up to $2,000/year in federal taxes.
• 20% tax credit for the first $5,000 paid for qualified expenses. After 2002, a 20% tax credit on the first $10,000 paid.
• No limit on number of tax years you may claim Lifetime Learning Credit.
• Covers tuition and fees.
• Available for all years of post-secondary education and to students taking individual classes to improve job skills.
• You qualify by paying tuition and fees for yourself (if independent), your spouse or your dependent child.
• Student activity fees, athletic fees and other expenses do not count toward your credit.
• Grants and scholarships will reduce the tuition and fees used to determine your credit.
• Eligibility decreases for Modified Adjusted Gross Incomes (MAGIs) between $43,000 (filing single) and $107,000 (filing jointly married). Can't claim MAGIs above these limits.
• You benefit from tax credits only to the extent you owe federal income tax. If you don't owe taxes, you won't receive a tax credit.
• Student doesn't need to be pursuing a degree or other recognized credential.
• Felony drug conviction rule doesn't apply.

Student Loan Interest Deduction

• Parents and independent students may deduct interest on loans borrowed to meet college expenses.
• Deduction is for interest payments made during the first 60 months (five years) in which interest payments are required.
• Deduction diminishes for Modified?Adjusted Gross Income (MAGIs) of $55,000 (single filers) and $105,000 (married, filing jointly). Cannot deduct if income is above these amounts.
• Maximum deduction in 2001 and beyond, $2,500.
• You aren't required to itemize to receive the deduction
• Dependents may not claim the deduction.
• Married couples must file jointly to receive the deduction.

Using IRA Withdrawals for College Costs

• You may withdraw from an IRA to pay higher education expenses for yourself, your spouse, your child or grandchild.
• You will owe federal income tax on the amount withdrawn, but won't be subject to the 10% early withdrawal penalty.

Read more about these and other tax incentives on the Department of Education's Federal Student Aid web page.

Check with the campus Financial Aid Office or your tax advisor to see how these tax incentives may apply to you and your family.