– By Brett Wallach
A Way For Middle Class Students To Maximize College Funding
At a time when the economy is suffering and parents (like me) are wondering how to afford to send our prodigies off to school during these difficult times, the Hope Credit has been increased from $1,650 to $1,800 for parents with a modified adjusted gross income (MAGI) between $48,000 and $56,000, and twice those amounts if you are filing a joint return. Many middle class families fall between these numbers and for them, the Hope Credit may just be the ticket to make college costs somewhat easier to swallow.
Before you get a headache trying to figure out what all of the numbers mean, or before you ask your brilliant offspring to whip out their fancy calculators, I will try to make this as simple as possible (I understand; Math was never my strong suit either). The amount of the Hope credit (per eligible student) is the sum of 100% of the first $1,200 of qualified education expenses for the eligible student and 50% of the next $1,200.
The Hope tax credit reduces the income taxes that you may have to pay; unlike a deduction, which reduces your income subject to be taxed, the Hope credit is a nonrefundable credit, meaning that it directly reduces the taxes that you owe, down to zero if applicable! It must be added that, obviously, if the credit is more than the tax that you owe, the excess is not refunded to you.
The benefits are even greater for students attending an eligible educational institution in “Midwestern disaster areas”, defined as specific counties within Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska and Wisconsin. The Hope credit for students in these areas is 100% of the first $2,400 of qualified education expenses and 50% of the next $2,400. Thus, the maximum credit is double; $3,600 per student in these areas as opposed to the $1,800 per student elsewhere.
So…how many of you, like me have begun Googling bus transportation to Hope, Arkansas?
You don’t need to fret or move. No matter where you reside, the Hope credit can be a godsend for many middle class parents struggling with college costs, which keep rising while the value of our 401K investments and homes is decreasing, along with our incomes in many cases.
A caveat: the Hope credit would be in lieu of the lifetime learning credit; you cannot claim both. Generally speaking, if your total qualified education expenses for a student are less than $9,000, the Hope credit is the way to go.
If you pay qualified education expenses for more than one student in the same year (my unenviable fate in the very near future) you can choose to take credits on a per-student, per-year basis. This means that you can take the Hope credit for one student and the lifetime learning credit for another.
Look, nothing is going to make college cheap or the economy instantly rebound. The Hope Credit, is, if not really audacious, at least one of many means towards making our dreams of a college-educated child possible. Now as to retirement…anybody have any lucky Power Ball number suggestions?