Ask Kim


Did You Miss This Tax Break for College Costs?

Kimberly Lankford

You may be able to claim an expanded version of the Hope credit if your child attends college in the Midwest.



Is there really a special tax break for college costs if your child goes to school in the Midwest? I’m about to file my tax return but wanted to check on this first.

People throughout the country can benefit from the American Opportunity credit, an expanded tax break for college costs that was created as part of the economic-stimulus law. It provides a tax credit for 2009 and 2010 of up to $2,500 for tuition and fees in the first four academic years of college. For most people, it replaces the Hope credit, which provided less money and had lower income limits.

However, some students who go to college in the Midwest can still claim an expanded version of the Hope credit, worth $3,600 for the first two years of college and more valuable than the new American Opportunity credit. They get a special deal if their college is in one of the parts of seven states -- Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska and Wisconsin -- that had been declared Midwest Disaster Areas due to floods in 2008. Students beyond the first two years of college can take a supercharged version of the Lifetime Learning credit, which for 2009 has been increased from 20% to 40% of the first $10,000 in eligible expenses for those midwestern states, doubling the maximum credit from $2,000 to $4,000 per tax return.

See table 4.2 in IRS Publication 970 for a list of counties that qualify. In those areas, you can also take the Hope credit for room and board in 2009 -- not just for tuition, fees and books. To qualify, students just need to attend college in one of those areas; their families don’t have to live in one of those states. IRS Publication 970, Tax Benefits for Education, has details.

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The income limits to qualify for the Hope credit remain lower than they are for the American Opportunity credit, no matter where you live. The American Opportunity credit phases out for individual filers with modified adjusted gross income between $80,000 and $90,000 and for joint filers with income between $160,000 and $180,000. Eligibility for the Hope and Lifetime Learning credits phases out if your modified adjusted gross income is between $50,000 and $60,000 for singles and $100,000 and $120,000 for joint filers. Those limits apply to the parents’ income if the student is claimed as a dependent on their tax return.

If you already filed your 2009 return but didn’t realize you were eligible for the expanded Hope or American Opportunity credit , you can file an amended return (Form 1040x) and get a refund.

For more information about special tax breaks for college costs in 2009 and 2010, see Get a Bigger Tax Break for College Expenses and Make the Most of Tax Breaks for College Expenses.

Got a question? Ask Kim at askkim@kiplinger.com.



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