Article Source: www.irs.gov
What's New
American opportunity credit. This new education tax credit (a modification of the Hope credit) is available for 2009 and 2010. The maximum credit per student is $2,500 (100% of the first $2,000 and 25% of the next $2,000 of qualified education expenses). The credit is available for the first 4 years of postsecondary education, and 40% of the credit is refundable for most taxpayers. The threshold at which this credit is reduced is higher than that for the Hope and lifetime learning credits. For 2009, the amount of your credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You cannot claim a credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).
Eligibility for the Hope credit. For 2009, you can claim a Hope credit only if at least one eligible student is attending an eligible educational institution in a Midwestern disaster area and you do not claim an American opportunity credit for any other student in the same year.
Increased income thresholds for 2009.
Hope and lifetime learning credits. For 2009, the amount of your Hope or lifetime learning credit is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return). You cannot claim a credit if your MAGI is $60,000 or more ($120,000 or more if you file a joint return). This is an increase from the 2008 limits of $48,000 and $58,000 ($96,000 and $116,000 if filing a joint return). For more information, see chapters 3 and 4.
Student loan interest deduction. The amount of your student loan interest deduction for 2009 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $60,000 and $75,000 ($120,000 and $150,000 if you file a joint return). You cannot take a deduction if your MAGI is $75,000 or more ($150,000 or more if you file a joint return). This is an increase from the 2008 limits of $55,000 and $70,000 ($115,000 and $145,000 if filing a joint return). See chapter 5 of Publication 970 for more information.
Qualified tuition program (529 plan). For 2009 and 2010, qualified education expenses include expenses paid or incurred for the purchase of computer technology, equipment, and Internet access to be used by the beneficiary and his or her family while enrolled at an eligible educational institution. For more information, see Qualified education expenses in chapter 9.
Education savings bond program. For 2009, the amount of your interest exclusion will be gradually reduced (phased out) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between $104,900 and $134,900. You cannot take the deduction if your MAGI is $134,900 or more. For 2008, the limits that applied to you were $100,650 and $130,650. For all other filing statuses, your interest exclusion for 2009 is phased out if your MAGI is between $69,950 and $84,950. You cannot take the deduction if your MAGI is $84,950 or more. For 2008, the limits that applied to you were $67,100 and $82,100. For more information, see chapter 11.
Business deduction for work-related education. For 2009:
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If you drive your car to and from school and qualify to deduct transportation expenses, the amount you can deduct for miles driven during 2009 is 55 cents per mile. This is down from 58½ cents per mile at the end of 2008. See chapter 13 for more information.
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If your adjusted gross income for 2009 is more than $166,800 ($83,400 if you are married filing separately), your itemized deductions may be limited. See chapter 13 and the instructions for line 29 of Schedule A (Form 1040).
Reminders
Students in Midwestern disaster areas. The following rules apply only to students attending an eligible educational institution in the Midwestern disaster areas in the states of Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin. See Table 4-2 at the end of chapter 4 for a list of counties.
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Hope credit increased. The Hope credit for students in Midwestern disaster areas is 100% of the first $2,400 of qualified education expenses and 50% of the next $2,400 of qualified education expenses for a maximum credit of $3,600 per student.
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Lifetime learning credit increased. The lifetime learning credit rate for students in Midwestern disaster areas is 40% of qualified expenses paid, with a maximum credit of $4,000 allowed on your return.
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Definition of qualified expenses expanded. The definition of qualified education expenses for the education credits and the tuition and fees deduction is expanded for students in Midwestern disaster areas.
See chapters 3, 4, and 7 for more information.
Contribution of military death gratuity to Coverdell ESA. Families of soldiers killed in the line of duty may contribute, subject to certain limitations, up to 100 percent of survivor benefits to education savings accounts. Under certain conditions this applies retroactively to deaths from injuries occurring on or after October 7, 2001. For more information, see chapter 8.
Estimated tax payments. If you have taxable income from any of your education benefits and the payer does not withhold enough income tax, you may need to make estimated tax payments. For more information, see Publication 505, Tax Withholding and Estimated Tax.
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