Pamela Revak on Education Tax Credits

Pamela Revak on Education Tax Credits

By Pamela Revak


In the not too distant past, the cost of a post-secondary education was considered a non-deductible personal expense paid to acquire the skills necessary to obtain a job; deemed an investment in human capital that would be repaid over time in the form of enhanced future earnings. For tax years beginning in 1998, Congress passed as part of the Tax Relief Act of 1997, the HOPE Credit, which allows a non-refundable personal credit against the taxpayer's income tax liability for amounts paid for qualified educational expenses.1 
The goal in providing the credit was to defray the costs of post-secondary education for low and middle-income families.2

Originally, the credit consisted of the sum of two parts, the Hope Scholarship Credit and the Lifetime Learning Credit. The Hope Scholarship Credit is allowed for only two tax years, while the Lifetime Learning Credit may be taken in any tax year, without limit. In both cases, the credit is determined as a percentage of the qualified tuition and related expenses paid by the taxpayer for an eligible student to attend an eligible educational institution. The allowed amount of the credit is subject to reduction or elimination for taxpayers whose modified adjusted gross income exceeds a certain threshold. In 2009, Congress amended the Hope Credit provisions, providing a temporary replacement credit for the Hope Scholarship Credit, the American Opportunity Tax Credit. The American Opportunity Tax Credit is computed similarly to the Hope Scholarship Credit, but is partially refundable and allowable for four taxable years. It is set to expire for tax years after 2012.3

1 IRC §25A.

2 HR Rep No 105-220, 105th Congress, 1st Sess, §201 (1997).

3 The American Recovery and Reinvestment Act of 2009, Pub L No 111-5, 111th Congress, Sess, §1004 (Feb 17, 2009).

About the Author:

Pamela Revak is a tax and trust and estates attorney, who has had her own practice for over 15 years. Her tax practice focuses on individual and fiduciary tax compliance and consulting. Pam is the update author for Trust Department Administration and Operations published by LexisNexis.

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