Hope/Lifetime

Jan 29, 2008 1 Replies

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My son (18) is a Freshman at a major university. We claim him as a dependent and provide nearly 100% of college costs. Per form 1098-T, we paid $7478 in qualified college expenses in '07 and section 5 notes a $500 scholarship. We have an adjusted gross income of $104,000. In addition, he had a small summer job and earned @$1400 and paid $73 in income tax. He also took out Federal Stafford loan for the amount $1750/semester, of which he paid @$21.50 in interest and origination fees.

Question: Yes, continue to claim son as a dependant? File for Hope Scholarship Tax Credit *or* Lifetime Learning Tax Credit (which)? He will need to file a 1040EZ to get the $73 in taxes back? Taxact is asking if any member of the family receive educational scholarships - the answer "yes", then is asking who received it - me or my spouse; neither, my son did. Correct? Or do show that we received it?

Thanks

Bill

You should continue to claim your son as your dependent.

You reduce the expense amount listed on Form 1098-T by the $500 scholarship. The maximum Hope credit is $1,650, however your income of $104,000 is at the midpoint of the phase-out range ($94,000 - $114,000). Thus the maximum credit for which you will be eligible should be approximately $800. The credit is claimed on Form 8863, which cannot be filed prior to February 11 due to tax law changes enacted in late December.

You may come out better claiming the Tuition and Fees deduction. The maximum amount you can deduct is $4,000, however since you probably are in a

25% marginal tax bracket, the Tuition and Fees deduction should yield the greater tax benefit. The Tuition and Fees deduction is claimed on Form 8917, which can be processed now. The Tuition and Fees deduction is an above-the-line deduction claimed in the Adjustments to Income section of Form 1040, i.e., you don't have to itemize to claim it.

For more information on claiming the Hope credit or the Tuition and Fees deduction, see IRS Publication 970.

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Your son should file his own Form 1040-EZ to claim a refund of his $73 federal income tax withheld. I recommend you use the FreeFile program, accessible from the IRS homepage, to file his return. You can use any of the participating vendors but I prefer either of the tax software industry leaders: TurboTax or H & R Block.

Condor

Hope/Lifetime

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