<p>From a quick reading of IRS Publication 970, here is what I have gleaned:</p>
<ul>
<li>Hope and Lifelong Learning Credit phase out for a modified adjusted gross income (MAGI) of between 96k-116K. Above 116K you cannot get the education credits.
-Whether you should apply for the Hope or Lifelong Learning will depend on a number of factors: Hope is up to $1800 per child and is limited to the 1st 2 years of post-secondary education; Lifelong Learning is $2000 total per Return and is not limited to 2 years. If you have only one child in college Lifelong Learning might be better (provided you fufill the income requirements). If you have more than one child and if they are in the 1st 2 years of college, you should go with Hope (provided, again, you are not above the income cut off).</li>
<li>You can deduct the interest that you pay on student loans (up to $2500) if your MAGI is below 115K. Between 115k-145K the deduction will phase out. Above 145K you cannot claim this deduction. I believe you are eligible for this deduction even if you are claiming HOPE or Lifelong.</li>
<li>You can deduct tuition and fees (up to $4000) if your MAGI is below 130K. Between 130k-160K the deduction will phase out. Above 160K you cannot claim this deduction. You cannot claim this deduction and the Hope or Lifelong credit for the same year and for the same student. This will be the option for the upper-middle income people.</li>
<li>If your MAGI is over $160K you get no tax benefits from your college expenses.</li>
<li>In most cases your child (and it is your child who will have pay taxes on the taxable portion of 529 distribution) will not have to pay taxes. If your "adjusted qualified educational expenses" (qualified expenses minus scholarships and grants, etc.) is greater than your total 529 distribution, which should be true in most cases, your child will not have to pay any taxes. </li>
</ul>
<p>Respected and most esteemed cc'ers, please peruse and critique. I promise not to wilt before mockery.</p>
<p>So many possibilities lead to a lot of confusion, I agree! </p>
<p>If you are trying to figure out which to claim this year, I'd suggest using one of the tax software packages out there. I used Turbotax a couple of years ago and it decided for me whether to take the tuition/fees deduction (line 30 something I think) or the lifetime learning credit (line 50-ish). Saved me a lot of sweat and tears! I've heard good things about the free federal returns at taxact.com but I haven't checked it out yet.</p>
<p>I would only point out that Turbo tax runs the educational expense optimization without regard to your State return. In some cases, it would be more beneficial to take the tuition deduction than the tuition credits because that carried through to the State return.</p>
<p>Also, the Hope credit is for the first two years. It can only be taken twice, but in any of the years in which the student is a freshman or sophomore. In other words: the year they graduate from high school for that first semester of college, the next year when they are a freshman and sophomore, or in the third year when they are a sophomore in the spring semester.</p>
<p>In Fafsa i just left the hope and learning credit blank, and looking at what bkk put I think I qualify, can I correct this on the FAFSA along with my parent's financial info? On Fafsa it says you CANNOT correct Your financial information, unless it was incorrect as of the day the FAFSA was submitted. This means I can correct it right? Just trying to be sure.</p>
<p>Thanks for the idea about checking both the State and Federal Returns before deciding to take the tuition deduction or the lifetime learning credit!</p>
<p>Don't forget to also check and see if taking the tution deduction (above the line deduction which reduces AGI) will affect your EFC for financial aid purposes. Reducing your AGI by 2K-4K may make you eligible for a zero EFC or the simplified means test.</p>