<p>This is my first year dealing with this on taxes. I did a online program and did my taxes by hand also. On form 1040 it seems you can take upto a $4000 tuition deduction, but the program automatically did a Hope credit and would not allow the tuition deduction instead.
It seems I would have gotten more back on tuition deduction vs HOPE CREDIT.</p>
<p>DO YOU HAVE to accept the Hope credit or can you use the TUITION reduction????</p>
<p>The Hope credit directly reduces your taxes, while the tuition deduction works just like any other deduction. In other words, the amount you qualify for under the deduction would have to be considerably higher than the Hope credit to equal the benefit you get from lopping the HC directly off your tax bill. Could that be why the program figured that the Hope Credit was a better route?</p>
<p>Multiply $4000 by your marginal rate to see the net benefit of the deduction. If you're in the 28% bracket, then the deduction is worth about $1,100 to you. That's what you should compare to the total amount of the credit.</p>
<p>Disclaimer: I'm not a CPA, but I did stay at a Holiday Inn Express once.
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<p>It really depends on your situation. The tuition deduction is "above the line" which means it reduces your AGI. If your AGI is close to deduction/credit phase-out levels, or if you are subject to the AMT, or if you have state taxes which are calculated from your AGI (all of which are true for our family situation) then taking the tuition deduction may be better. (For 2007 the Hope Credit phase-out range was $94K-$114K AGI.)</p>
<p>Simple Example:
(28% Federal Tax X $4000 Tuition Deduction) + (5% State Tax X $4000 Tuition Deduction) = $1,333 Tax Reduction
Hope Credit with $90K AGI = $1,650
Hope Credit with $100K AGI = $1,155
Hope Credit with $120K AGI = zero</p>