Appendices
The following appendices include an illustrated example of how to use the Form 8863 when claiming both the Hope and lifetime
learning (education)
credits at the same time and a chart reflecting some of the major differences between the many tax benefits for education
that are outlined in this
publication.
-
Appendix A — An Illustrated Example of Education Credits including a filled-in Form 8863 showing how to claim
both the Hope credit and lifetime learning credit for 2003.
-
Appendix B — A chart summarizing some of the differences between the education tax benefits discussed in this
publication. It is intended only as a guide. Look in this publication for more complete information.
Appendix A. Illustrated Example of Education Credits
Dave and Valerie Jones are married and file a joint tax return. For 2003, they claim exemptions for their two dependent children
on their tax
return. Their modified adjusted gross income is $86,000. Their tax, before credits, is $9,701. Their son, Sean, will receive
his bachelor's degree in
psychology from the state college in May 2004. Their daughter, Corey, enrolled full-time at that same college in August 2002
to begin working on her
bachelor's degree in physical education. In July 2003, Dave and Valerie paid $2,200 in tuition costs for each child for the
Fall 2003 semester. In
December 2003, they also paid $2,600 of tuition for each child for the Spring 2004 semester that begins in January.
Dave and Valerie, their children, and the college meet all of the requirements for the education credits. Because Sean is
beyond the second
(sophomore) year of his postsec- ondary education, his expenses do not qualify for the Hope credit. But, amounts paid for
Sean's expenses in 2003 for
academic periods beginning in 2003 and the first 3 months of 2004 qualify for the lifetime learning credit. Corey is in her
first two (freshman and
sophomore) years of postsecondary education and expenses paid for her in 2003 for academic periods beginning in 2003 and January
2004 qualify for the
Hope credit.
Dave and Valerie figure their tentative education credits for 2003, $2,460, as shown in the completed Form 8863.
They cannot claim the full amount because their
modified adjusted gross income is more than $83,000. They carry the amount from line 18 of Form 8863 to line 47 of Form 1040,
and they attach the Form
8863 to their return.
Appendix B — Highlights of Tax Benefits for Education for Tax Year 2003
This chart highlights some differences among the benefits discussed in this publication. See the text for definitions and
details.Do not rely on this chart alone.
Caution:You generally cannot claim more than one benefit for the same education expense.
| |
Scholarships,
Fellowships,
Grants, and Tuition Reductions
|
Hope Credit |
Lifetime Learning Credit |
Student Loan Interest Deduction |
Tuition and Fees Deduction |
What is your
benefit?
|
Amounts received may not be taxable
|
Credits can reduce amount of tax you must pay |
Can deduct interest paid |
Can deduct expenses |
| What is the annual limit? |
None |
$1,500 credit per
student
|
$2,000 credit per
family
|
$2,500 deduction |
$3,000 deduction |
What expenses
qualify besides
tuition and required
enrollment fees?
|
None |
None |
None |
Books
Supplies
Equipment
Room & board
Transportation
Other necessary expenses
|
None |
| What education qualifies? |
Undergraduate & graduate
K–12
|
1st 2 years of undergraduate (postsecondary) |
Undergraduate & graduate
Courses to acquire or improve job skills
|
Undergraduate & graduate |
Undergraduate & graduate |
What are some of
the other
conditions that
apply?
|
Must be in degree or vocational program
Payment of tuition and required fees must be allowed under the grant
|
Can be claimed for only 2 tax years
Must be enrolled at least half-time in degree program
No felony drug conviction(s)
|
|
Must have been at least half-time
student in degree program
|
Cannot claim both deduction & education credit for same student in
same year
|
In what income
range do benefits
phase out?
|
No phaseout |
$41,000 – $51,000
$83,000 – $103,000 for joint returns
|
$50,000 – $65,000
$100,000 –
$130,000 for
joint returns
|
No deduction if income is more than $65,000 ($130,000
for joint returns)
|
Appendix B
<emphasis>(Continued)</emphasis>
This chart highlights some differences among the benefits discussed in this publication. See the text for definitions and
details.Do not rely on this chart alone.
Caution:You generally cannot claim more than one benefit for the same education expense.
| |
Coverdell ESA
1 |
Qualified Tuition Program (QTP)
1 |
Early IRA Distributions
1 |
Education Savings Bond Program
1 |
Employer-
Provided Educational Assistance
1 |
Business Deduction for Work-Related Education |
| What is your benefit? |
Earnings not
taxed
|
Earnings not taxed
2 |
No 10%
additional tax on early distribution
|
Interest not taxed |
Employer benefits not taxed |
Can deduct expenses |
| What is the annual limit? |
$2,000 contribution per beneficiary |
None |
Amount of qualified
education expenses
|
Amount of qualified
education expenses
|
$5,250 exclusion |
Amount of qualifying work-related education expenses |
| What expenses qualify besides tuition and required enrollment fees? |
Books
Supplies
Equipment
Expenses for special needs services
Payments to QTP
Higher education:
Room & board if
at least half-time
student
Elem/sec (K–12) education:
Tutoring
Room & board
Uniforms
Transportation
Computer access
Supplementary
expenses
|
Books
Supplies
Equipment
Room & board if
at least half-time student
Expenses for special needs services
|
Books
Supplies
Equipment
Room & board if
at least half-time student
Expenses for special needs services
|
Payments to Coverdell ESA
Payments to QTP
|
Books
Supplies
Equipment
|
Transportation
Travel
Other necessary expenses
|
| What education qualifies? |
Undergraduate & graduate
K–12
|
Undergraduate & graduate |
Undergraduate & graduate |
Undergraduate & graduate |
Undergraduate & graduate |
Required by employer or law to keep present job, salary, status
Maintain or improve job skills
|
| What are some of the other conditions that apply? |
Assets must be distributed at age 30 unless special
needs beneficiary
|
|
|
Applies only to qualified series
EE bonds issued after 1989 or series I bonds
|
|
Cannot be to
meet minimum educational requirements of present trade/business
Cannot qualify
you for new trade/business
|
| In what income range do benefits phase out? |
$95,000 – $110,000
$190,000 – $220,000 for
joint returns
|
No phaseout |
No phaseout |
$58,500 – $73,500
$87,750 – $117,750 for
joint returns
|
No phaseout |
May be subject to limit on itemized deductions |
1 Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses.
2 Does not apply to distributions from QTPs sponsored by educational institution until 1/1/04; however, no 10% additional tax
is
imposed.
|
