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Tax Credits for Individuals

  1. Child Tax Credit
  2. EITC
  3. Form 5405
  4. Foreign Tax Credit
  5. IRS Publication 970
  6. Publication 972
  7. Form 1095-A
  8. ACTC
  9. Bush Tax Cuts
  10. Hope Credit
  11. Non-Refundable Tax Credit
  12. Tax Credit

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Hope Credit: Definition & Overview

Updated: November 25, 2022

Individuals and businesses across the United States are eligible for all sorts of different tax credits. These tax credits are meant to provide a little more flexibility and forgiveness for the taxes you need to pay. Essentially, they’re a great way to pay less but also promote various initiatives. 

The Hope Credit, for example, is a type of tax credit that’s available to certain American citizens. Want to find out more about how it works and if you’re eligible for it? Keep reading to learn more!

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    KEY TAKEAWAYS

    • A $2,500 income tax credit is available to qualifying students who have not yet completed four years of education thanks to the Hope Credit.
    • This credit is a nonrefundable tax credit that can only lower a taxpayer’s liability to zero. If any money is left over after the credit has been used, the taxpayer must automatically surrender it.
    • Taxpayers must meet eligibility criteria, such as the household income thresholds and the student’s enrollment status, in order to be eligible.

    What Is the Hope Credit?

    The hope credit is a nonrefundable education tax credit made available to qualified Americans. This tax credit is available to eligible students who have not yet finished four years of post-secondary education.

    To promote higher education and offer some form of tuition compensation for parents or students who are paying for college tuition and fees, the Hope and other lifetime learning credits were passed into law. 

    The Hope Credit, otherwise known as the Hope Scholarship Tax Credit is now a part of the American Opportunity Tax Credit (AOTC).

    Turn Tax Pains Into Tax Gains

    How the Hope Credit Works

    One of two nonrefundable education credits offered to taxpayers is the Hope Credit. Recipients are eligible to use the Hope Credit for books, tuition, and other expenditures. However, expenses such as accommodations, healthcare costs, and insurance are not eligible for the Hope Credit. 

    After the Hope Credit has been used up, the Lifetime Learning Credit is the next credit that is accessible. The Hope Credit was incorporated into the American Opportunity Tax Credit (AOTC) as of 2009.

    A portion of the tax credit also became refundable when the Hope Credit was increased and renamed the American Opportunity Tax Credit. This means that if the credit reduces the taxpayer’s tax liability to zero, they are entitled to a 40% return of the balance of the credit, up to a maximum of $1,000.

    How Do You Qualify for the Hope Credit?

    The Hope Credit is now available to a wider variety of taxpayers according to the AOTC, which also increased eligibility for people with higher earnings and those who owe no taxes. Individuals having a modified adjusted gross income (MAGI) of $80,000 or less are eligible for the tax. For joint filers, this is increased to $160,000 or less.

    If a student has been enrolled at least part-time in a recognized post-secondary institution for one academic year, the IRS considers them to be qualified. The student must not have been convicted of any felony drug charge by the conclusion of the tax year and must still be enrolled at the institution at the start of the tax year, taking courses toward a degree or another recognized educational qualification.

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    How Do I Claim Hope Credit?

    You must file a federal tax return, fill out Form 8863, and then attach the form to your Form 1040 or Form 1040A in order to claim AOTC.

    You can use the details from the Form 1098-T Tuition Statement that was received from the school the student attended. The form contains information about:

    • The institution’s federal identification number
    • The student’s taxpayer identification number
    • Any payments made for tuition and related fees
    • The amounts billed or refunded
    • The scholarships the institution administers
    • The student’s enrollment and graduation status

    Summary

    The American Opportunity Tax Credit, or Hope Credit, is a tax credit that can be used to offset the cost of the first four years of post-secondary education. Each eligible student may receive a maximum annual credit of $2,500, and if no taxes are due, 40%, or $1,000, may be reimbursed. 

    Limitations based on income apply to this credit.

    Less Taxin'. More Relaxin'

    FAQS About Hope Credit

    Is the Hope Credit the Same as the American Opportunity Credit?

    In a way, yes. The American Opportunity Credit replaced the Hope Credit.

    How Do I Know if I Have Hope Credit?

    You can see how much you have previously claimed for this credit at the bottom of Form 8863, Page 2.

    How Many Times Can You Claim the Hope Credit?

    For a total of four years, each eligible student may claim the American Opportunity Education Credit.

    Can Parents Claim Hope Credit?

    Any person who pays money for acceptable educational costs is eligible to make a claim.

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