Significance

• Both the Hope Credit and Lifetime Learning Credit are tax breaks for the federal income tax filer, available as a credit on taxes owed. The Hope Credit expansion under the American Recovery and Reinvestment Act increases benefits in both dollar amount and extended years for 2009 and 2010. The IRS calls the modified Hope Credit an American Opportunity Credit or AOC. There are three credits available to choose from for the American taxpayer in 2010.
  
  

Benefits

• The Hope Credit provides up to $1,800 in credit. Special provisions cover students attending school in Midwestern disaster areas with credit up to $3,600.
  
  The American Opportunity Credit provides up to $2,500 in credit per student per year for qualifying tax filers. Up to $1,000 or 40 percent of this amount is refundable, so if the taxpayer owes no taxes and claims a valid credit, he may receive a check from the IRS.
  
  The Lifetime Learning Credit covers more learning opportunities than the Hope or AOC. Lifetime Learning allows job skills improvement courses and professional degree coursework and does not require half-time enrollment status. Lifetime learning calculations are by family, and not by individual. Lifetime learning credits 20 percent of qualified expenses up to $2,000 for $10,000 of expenses.
  
  

Restrictions

• The IRS does not allow double recovery of college expenses. Claiming tuition and fees under one program precludes recovery under another. The American Opportunity Credit is available for taxpayers with a modified adjusted gross income of $90,000 filing singly or $180,000 filing jointly according to IRS Publication 970. Hope Credit income restrictions are $60,000 for single filers and $120,000 for joint filers. The Lifetime Learning Credit can be used for years; the other two credits are limited. Many other restrictions apply for these education credits, including what expenses you can claim.
  
  

Differences

• The Lifetime Learning Credit has the least restrictions, and allows credit for a single course. Lifetime Learning has the highest income limits and pays 20 percent of approved expenses. It also allows credit for convicted felons, whereas the Hope Credit and the American Opportunity Credit do not allow convicted felons to claim benefits. If you have more than one student, you cannot claim the Hope Credit for one and the American Opportunity Credit for another. The American Opportunity Credit provides the best tax break if you qualify.
  
  

Claim a Credit

• File IRS Form 8863 in addition to the IRS Form 1040 to claim any of the three credits available in 2009 and 2010. Rely on Form 1098-T from your college or university for accurate tuition amounts. This form arrives early in the year following attendance.