Education tax credit under stimulus package

Paying for College
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<p>I have been reading and trying to understand (easier said than done with these bills) the education credit in the stimulus package. It sounds like it is a temporary (2009-2010 tax year) adjustment to the Hope credit. Increases it to $2500 a year (100% of 1st $2000 and 25% of the next $2,000), extends it to 4 years instead of 2, and makes 40% of it ($1000) a refundable credit - ie a credit you can get even if you have no tax liability, and extends the definition of qualified expenses for the credit to include required course materials. Oh and increases the income limits.</p>

<p>Now the Pell I completely confused about as the online news is saying one thing ($5,000 or even more on some sites) and the Bill I am looking at says another ($4860). I guess maybe (hopefully) I am missing something elsewhere in the Bill.</p>

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<p>Winners</a> and losers in the final stimulus bill - CNN.com</p>

<p>another good breakdown <a href="http://www.nytimes.com/2009/02/13/your-money/13money.html?hp%5B/url%5D"&gt;http://www.nytimes.com/2009/02/13/your-money/13money.html?hp&lt;/a&gt;&lt;/p>

<p><<tax credits:="" individuals="" making="" less="" than="" $80,000="" or="" families="" $160,000="" can="" get="" up="" to="" $2,500="" in="" tax="" credits="" for="" college="" tuition.="" 40="" percent="" ($1,000)="" of="" the="" credit="" is="" refundable.="" cost:="" $13.9="" billion="" over="" 10="" years.="">></tax></p>

<p>My question is this. If I pay $7000 towards tuition, can I use $2500 for this tax CREDIT and another $4000 for the tuition and fees deduction. </p>

<p>I do not know if the current tuition and fees deduction (which people that make more than the limits for the Hope/Lifetime learning credit can use in 2008 tax year) is not going to exist for 2009. If I could get BOTH, that would be awesome.</p>

<p>At my AGI level (in the range where the Hope/LL are phased out), it was more beneficial to take the Tuition and fee deduction than the Hope or Lifetime learning credit. It also lowered my AGI below 50K to 'pass' the simplified needs test.</p>

<p>from the NYT:
PELL GRANT According to a summary from the office of House Speaker Nancy Pelosi, the maximum Pell Grant will increase by $500, to $5,350 in 2009 and $5,550 in 2010. The grants are generally for low-income students.</p>

<p>HIGHER EDUCATION TAX CREDIT This credit covers up to $2,500 of the cost of college tuition and other related expenses in 2009 and 2010. You’ll need to spend at least $4,000 in a single year to get the full credit. The credit begins to phase out for individual taxpayers with adjusted gross incomes over $80,000 or $160,000 for married couples filing jointly.</p>

<p>Forty percent of the credit is refundable, which benefits low-income students paying their way through school (who may owe no federal income taxes).</p>

<p>529 PLAN EXPANSION When you withdraw money from a 529 college savings plan, you can use it for tuition, room, board, books and other college expenses. In 2009 and 2010, families can also use the money for computers and computer technology, which could include educational software and Internet service for students living at home.</p>

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<p>this link uses the word 'expanded'.
The</a> Associated Press: Highlights of House-Senate economic stimulus plan</p>

<p>EXPANDED COLLEGE CREDIT
_ About $14 billion to provide a $2,500 expanded tax credit for college tuition and related expenses for 2009 and 2010. The credit is phased out for couples making more than $160,000.</p>

<p>and to further pain your brain (this is dated yesterday)
How</a> the Stimulus Helps You Pay for College - US News and World Report</p>

<p>Under the stimulus bill, starting next year, taxpayers earning up to $80,000 (or $160,000 for joint filers) will be able to reduce their tax bills dollar for dollar for the first $2,000 of tuition and books. A portion of education expenditures above that will get a partial credit. Best of all: Those who don't happen to owe any taxes could still be able to get at least a few hundred dollars in refunds.</p>

<p>That's an improvement over the smaller and more confusing tax credits and deductions in the current law. Anyone with education expenses filling out a 1040 this year has to decide whether to take the Hope tax credit of up to 100 percent of the first $1,200 spent on tuition or fees for freshman or sophomore years in 2007, plus 50 percent of the next $1,200; or the Lifetime Learning credit of 20 percent of up to $10,000 in tuition or fees paid in 2007; or whether to deduct qualified education expenditures from last year's income. The credits go only to filers with incomes up to $58,000 a year ($116,000 for joint filers). To make things even more complicated, there is an exception for filers from an officially designated Midwestern disaster area, such as Pulaski County, Ark. Students in those areas have more generous tax credit rules. The deductions have different income limits and rules, depending on whether the education is work related or not. Students are allowed to take only one of these education credits or deductions each year.</p>

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<p>Oh I did not know bout the 529 and computer thing. That could be very useful. My daughter's lap top is getting a bit wobbly and may need replacing and we don't have the money right now. If we can withdraw some 529 money tax and penalty free that would be awesome.</p>

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<p>So does this mean that the tuition and fees deduction will be available in ADDITION to the new tax credit. Remember the tax credit is a direct reduction of income taxes due. the Tuition and fees deduction is taken off your income and reduces your AGI
edit: upon a second read, I still can't decide if this is just for taxes FILED in 2009 for tax year 2008 or if this INCLUDES expenses paid in tax year 2009 to be filed in 2010. </p>

<p>NASFAA</a> - 2008 Federal Education Tax Benefits Guide</p>

<p>Tuition and Fees Tax Deduction: Congress extended this tax benefit until Dec. 31, 2009 as part of the $700 billion economic stimulus package.</p>

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<p>You could not take both the tuition and fees deduction and the Hope tax credit in the same year for the same student. So, as this seems to be an 'extension' of the Hope credit I am guessing the same applies.</p>

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<p>I may have to forgo my quest to keep my AGI under 50K for 2009, because I can't do it without that 4K deduction. I'll get to itemize and pay less tax and get this $2500 deduction so that will help offset the hit from my assets (which will of course be going down as I pay for school this year!) and my son won't be earning enough to make his earnings count like they did this year (he made alot of money selling women's shoes in Bloomingdales last summer)</p>

<p>Ack. I just finished 2008 taxes and fafsa and I've already got 2009 on the brain.</p>

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<p>I don't know for absolute sure, but what I had read earlier the $2500 will replace the Hope and Lifetime earning credits. That is also the max per family. Don't know if you have dependent kids, if each can take the credit. That would be nice.</p>

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<p>For the Higher Education Tax Credit it says atleast $4,000 has to be spent. Are federal loans which the student took out counted towards the $4,000?</p>

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<p>Yes. The tax credits can be claimed for tuition paid with loans (well the Hope and lifetime can be so I am assuming the same for this new - or expanded - one).</p>

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<p>cptofthehouse, I may be misunderstanding, but if the new $2500 tax credit replaces the Hope credit, but is also a max per family... then families like mine that would have been able to take the Hope Credit twice (I have 2 freshman this year, and so of course 2 sophomores next) amounting to $3600, will actually get less under the new credit. Is that right?</p>

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<p>I am not sure that it is by family rather than by student. The wording in the bill is

[quote]
Credit shall be an amount equal to the sum of‘‘(A) 100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to the eligible **student during any academic period beginning in such taxable year**) as does not exceed $2,000, plus ‘(B) 25 percent of such expenses so paid as exceeds $2,000 but does not exceed $4,000. ‘‘(2) CREDIT ALLOWED FOR FIRST 4 YEARS OF POST-SECONDARY EDUCATION.

[/quote]
</p>

<p>it is difficult to tell as the bill has so many 'amend this and amend that', that it is hard to follow. More research needed.</p>

<p>I also don't think it replaces the lifetime learning credit - just the Hope.</p>

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<p>Does this new tax credit only apply to tuition and qualified expenses for the first 2 years of undergraduate (like the Hope credit)? Or does it apply to tuition for all years in undergraduate? How about tuition for grad school?</p>

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<p>As far as I can tell it is a changed Hope credit and extends the credit from 2 years to 4 years. it also allows required books and supplies to be claimed as education expenses. It is called a different name in the bill but it refers to changing the Hope credit rules.</p>

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<p>"I have been reading and trying to understand (easier said than done with these bills) the education credit in the stimulus package"</p>

<p>Hey, at least you read the bill..lol</p>

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<p>Could the parent take the $2500 credit if the tuition was paid from a 529 account owned by the parent? or from a 529 UGMA account? I believe the current tax deduction for tuition doesn't apply to tuition paid from a 529 account.</p>

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<p>You can't use the same education expense for more than one tax benefit. I guess you could elect to make the 529 account withdrawal taxable (which would include a penalty) by saying you used it for non qualifie expenses, then you could claim the tax credit.</p>

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<p>thanks swimcats mom....in preparation for the FAFSA I made sure all $ saved for D's college was pretty much in 529 plans and I don't really have a lot of cash in my own name...so I guess I need to withdraw $4,000 from parent owned 529, put in my checking account, pay college, take $2500 credit, pay 529 penalty. Or something more creative.</p>

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<p>Remember room and board is a qualified expense for 529 account withdrawals but not for the tax credit. So you can use the 529 money for that tax free. If you have enough in the 529 account to cover all college costs then you will have to be creative, such as taking a tax hit on the 529 account withdrawal to enable you to benefit from the credit. Also if she has any scholarships there is something in the rules about withdrawing 529 account money penalty, though not tax, free. But you have to look at everything as a package - scholarships, 529s, tax credits, and see what works best for your circumstance tax wise.</p>

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<p>Good point on room and board swimcats mom...and I won't even be paying $4,000 in tuition in 2009 if she goes where I think she''ll go so maybe some of the spring 2010 tuition needs to be paid early. So much to think about!!!</p>

<p>oh...maybe its $2500 total for 2009 and 2010?</p>