The Hope Scholarship Credit

If you, your spouse, or a dependent for whom you claim an exemption was enrolled at least half-time in the first or second year of college in 2007, you may benefit from the Hope Scholarship credit.

The credit is for the first $1,100 of qualified expenses incurred by the student, and 50 percent of the next $1,100, so that the full credit of $1,650 applies if the student has at least $2,200 in expenses.

The Hope credit is available for each student in your family who meets the qualifications:

• he or she is enrolled in the first or second year of postsecondary education
• is enrolled in a program that leads to a degree, certificate, or other recognized academic credential
• is taking at least one-half of the normal full-time load of classes, for at least one academic period beginning during the calendar year
• has not been convicted of a drug-related felony

The only expenses that count toward the credit are tuition and fees required for attendance. Generally, the expenses can be deducted in the year the class begins, if the expenses were paid during that year. However, if you prepay expenses during one year, for a course that begins in the first three months of the following year, you can count those expenses toward the credit in the year they were paid.

Eligible institutions are any accredited public, nonprofit, or for-profit postsecondary institution eligible to participate in federal student aid programs.

Claiming the credit. To claim the Hope Scholarship credit (or the Lifetime Learning credit) you must complete IRS Form 8863, Education Credits, and attach it to your Form 1040 or 1040A. These credits are subtracted from your tax bill after the credit for child and dependent care expenses, the credit for the elderly and the disabled, and the child tax credit - and if all these credits reduce your tax bill to zero, you will lose any unclaimed amount of the education credits, because they may not be carried over into a subsequent year.

Be aware that there is a phaseout of the credit for those with higher income levels.