You may be able to claim tax credit for semesters beginning after 12/31/97. Payments made after 12/31/97 may be eligible for the credit.
The credit applies to the first two years of postsecondary education (for students who are enrolled at least half-time for at least one semester during the year). Half-time is six hours in the fall and winter semesters and three hours for the spring and summer semesters.
The credit can equal 100% of the first $1,000 and 50% of the second $1,000 of qualified costs, but cannot exceed the taxpayers total tax liability. Qualified costs include tuition and fees required for enrollment or attendance at an eligible educational institution. Qualified costs do not include books, room and board, student activities, athletics (unless the course is part of the student's degree program), insurance, equipment, transportation, or other similar personal, living, or family expenses. Qualified costs are to be reduced by certain financial aid awards including Pell, SEOG, institutional waivers, institutional scholarships, and possibly private scholarships.
The proceeds of student and parents loans flowing through the student's account are considered payments by the taxpayer. Only the student or the taxpayer (who claims the student as an exemption) can claim the credit. Married taxpayers must file jointly to be eligible for the credit.
The amount a taxpayer may claim as Hope Scholarship Credit is gradually reduced for taxpayers with modified adjusted gross incomes between $40,000 and $50,000 (between $80,000 and $100,000 for married taxpayers filing jointly). Taxpayers with modified adjusted gross income over $50,000 ($100,000 for married taxpayers filing jointly) may not claim a Hope Scholarship Credit. If the student is claiming the Lifetime Learning Credit, none of the student's expenses for that year can be applied toward the Hope Scholarship Credit.