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Q: What is meant by qualified tuition and fees?
A: Qualified tuition and related expenses are tuition and fees required for enrollment or attendance at an eligible educational institution. Only "out-of-pocket" expenses factor into calculating the credits. Tuition and related expenses paid with loans, earnings, gifts, inheritances, and personal savings qualify towards calculating the credit amount. However, qualified tuition and related expenses paid with a Pell Grant, other grants, tax-free scholarships, a tax-free distribution from an Education IRA, or tax-free employer-provided educational assistance are not taken into account in calculating the credit amount.
Qualified expenses do not include books, room and board, student activities, athletics (unless the course is part of the student’s degree program), insurance, or any other fee not directly related to tuition.
Q: Who can claim either of these credits, my child or myself?
A: Either the parent or the child, but not both, may claim the credits in a particular year. You may be eligible to claim the credit if you still claim your child as a dependent on your tax return. If your child is claimed as your dependent, any qualified tuition and expenses paid by your child during the tax year are treated as if you had paid them, and therefore, are included in calculating the credit. Students claimed as dependents may not claim either credit on their own return. If you don't claim your child as a dependent, they may be eligible to claim either of the credits on their own tax return.
Q: My child received a distribution from an Education IRA last year. Am I still eligible to claim the applicable education credit to reduce the tax I owe to the IRS?
A: Generally, no. The education credits cannot be claimed in the year a student receives a tax-free distribution from an Education IRA. However, the student may waive the tax-free treatment of the Education IRA distribution and elect to pay any tax that would otherwise be owed on the IRA distribution received in that taxable year. The student or the student’s parents may then claim either of the credits for expenses paid in said year.
Q: My tax filing status is married filing separately. May I still claim either tax credit?
A: No. Married taxpayers may claim either of the credits only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.
Q: I have determined that I qualify for the Hope Credit, but I don’t owe any federal taxes. May I carry forward the credit and claim it next year?
A: No. There are no carry forward rules that apply to these credits. Thus, you must have enough income tax to be offset by the credits to reap the full benefits.
Q: My child qualifies for federal financial aid. Will the tax credits be counted as another source of income in computing their financial need?
A: No. The Federal Application for Student Aid (FAFSA) will not reflect the Hope and Lifetime Learning Credits as income. The university will follow this same policy.
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