# Presentation: 261433

## Lesson 8

**Education Credits**

**Notes:**
This lesson contains information for all courses and has been updated
for Tax Year 2007.

References:
  Form 8863, Education Credits
  Form 1098-T, Tuition Statement
  Publication 4012, Volunteer Resource Guide 
Additional References:
  Publication 17, Your Federal Income Tax
  Publication 970, Tax Benefits for Education

Progress to the next slide. 	

## Introduction andObjectives

- Determine who is eligible to claim an education credit
- Determine which credit should be claimed

**Notes:**
Introduce the lesson.
Review the objectives with the class.
Explain that the Hope and Lifetime Learning credits are nonrefundable credits that allow a taxpayer to claim all or a portion of qualified tuition and related expenses paid for postsecondary education.
Explain that the Hope Credit and the Lifetime Learning Credit are separate options that can be claimed. 
Explain that these credits directly reduce the amount of tax owed on the return.

Progress to the next slide.

## Intake and Interview Process

- Form 13614 – Intake and Interview Sheet Credits Section

**Notes:**
Advise students to:
Use Form 13614, Intake and Interview Sheet, to engage the taxpayer in preparing an accurate return. 
Use the Intake and Interview Sheet as a starting point for a comprehensive interaction with the taxpayer, in combination with all the source documents provided by the taxpayer, to ensure quality and accuracy on each return.  
Confirm each item on Form 13614 (or similar tool used at your site) to make sure you and the taxpayer have considered all the necessary information. Ensure that all questions and issues have been addressed. If items are incorrect or incomplete, revisit each issue and make corrections to the return, as needed. 
Advise the students that they will need information from the “Family and Dependent” and “Credit” sections of Form 13614 to complete this section.
Although they are not specifically listed on Form 13614, you should ask probing questions to ensure all credits are accurately reported. 
Progress to the next slide.

## General Requirements

- The taxpayer cannot file married filing separately (MFS)
- Have qualified expenses
- Eligible student must attend eligible institution
- Have an eligible student
- Phase out:
- $94,000–$114,000 for married filing jointly (MFJ)
- $47,000–$57,000 for others

**Notes:**
Explain general requirements.
Refer to the student text for requirements.
Explain that to claim either of the education credits the taxpayer must file using any filing status other than married filing separately.
Read “Eligible Educational Institution” and discuss. 
Read “Qualified Education Expenses” and discuss.
Explain to students that to help figure the taxpayer's education credit, the taxpayer should receive Form 1098-T. Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or an acceptable substitute) to each enrolled student by January 31, 2008.
Read Example 1 and discuss.
Read “Adjustments to Qualified Expenses” and discuss.
Advise students of the Alert about taxable scholarships on page 8-4.
Read Example 2 and discuss.
Advise students that if taxpayers receive a refund of qualified tuition and related expenses, they may have to repay all or a part of the credit.  Advise the taxpayers to consult an outside professional.
Read the “Eligible Student” section and discuss.
Review “Who Can Claim Expenses?” and discuss. 
Read Example 3 and discuss.

Progress to the next slide.

## Hope Credit	

- Can be claimed for each eligible student
- Maximum is $1,650 credit per student
- Applies to the first two taxable years of postsecondary education
- Calculated in Part I of Form 8863
- Can be claimed on Form 1040A or Form 1040

**Notes:**
Explain to students that a Hope Credit can be claimed for each eligible student.
Explain to students that there is a maximum credit amount per student.
Explain to students that the credit only applies for the first two years of postsecondary education. 
Read Example 4 and discuss.

Progress to the next slide.

## Lifetime Learning Credit

- The credit is based on the total of qualified expenses, not the number of eligible students.
- The maximum credit is $2,000 per year.
- The credit is figured in Part II of Form 8863.
- The credit can be claimed on Form 1040A or Form 1040.

**Notes:**
Explain to the students that this credit is based on the total qualified education expenses paid by the taxpayer and not on the number of eligible students.
Have the students read the “Lifetime Learning” section of the student text.
Read Examples 5 and 6 and discuss.
Read Example 7 and discuss.
Refer the students to the Alert at the top of page 8-11.
Have students read the “Comparison Table” for differences between the two credits.
Advise students to complete Exercise 1 and discuss the answer.
Read TaxWise Hint: To input qualified tuition expenses and prepare Form 8863 using TaxWise, link from Form 1040, line 49, to select Form 8863, enter the student’s name in either the Hope Credit section or the Lifetime Learning Credit section, and complete all the entries annotated in red. TaxWise will automatically complete the form and carry the mathematical calculations to Form 1040. 

Progress to the next slide.

## No Double Benefits

- Cannot claim an education credit based on higher education expenses deducted on the return (e.g., as a business expense)
- Cannot claim the Hope and Lifetime Learning credits based on the same qualified expenses

**Notes:**
There are rules to prevent a taxpayer from using qualified education benefits twice.
Refer to the student guide under “No Double Benefits” for further information.

Progress to the next slide.

## No Double Benefits–cont’d

- Cannot claim an education credit based on qualified education expenses paid with tax-free assistance
- Cannot claim an education credit based on expenses used to figure the tax-free portion of a distribution from a Coverdell ESA or a qualified tuition program (QTP)

**Notes:**
For example, a student who receives a tax-free, full-tuition scholarship will not have qualifying expenses because the expenses are paid with tax-free assistance.  (Reminder: The earlier lesson on income discussed scholarships and when a scholarship might be taxable.) 

## Quality Review (QR)

- Form 8158 – Quality Review Sheet –
- Adjustments, Deductions, and Credits Section

**Notes:**
Advise students to:
Use Form 8158, Quality Review Sheet, or an approved alternative form, to review all returns prepared.  
Apply the Quality Review tools, in combination with the Intake and Interview Sheet and all the source documents, to the returns you prepare to ensure quality and accuracy for each taxpayer.  
Consider each box on the Quality Review Sheet that applies to the taxpayer’s situation to confirm that all the necessary questions and issues have been addressed. If items are incorrect or incomplete, revisit each issue and make corrections to the return, as needed.
Verify that the information on the Intake and Interview Sheet and on the taxpayer’s supporting documents is included on the return, to accurately report adjustments, deductions, and credits.
Confirm that all potential adjustments, deductions, and credits have been discussed with the taxpayer and shown on the return, if applicable.

Progress to the next slide.

## Lesson Summary

-  A taxpayer cannot:
- Deduct higher education expenses and also claim a Hope or lifetime learning credit based on the same expenses,
- Claim a Hope Credit and a lifetime learning credit based on the same qualified education expenses, or
- Claim a credit based on expenses paid with tax-free scholarship, grant, or employer-provided educational assistance.

**Notes:**
Review the “Summing Up This Lesson” section with the students.
Ask if there are any questions.

Progress to the next lesson.