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The Hope tax credit reduces tax liability for taxpayers funding college education. This credit, also known as American Opportunity tax credit, has been expanded for 2009 and 2010 to include more eligible expenses.
Eligible Taxpayers
According to the IRS, individual taxpayers with modified adjusted gross income of $80,000 or less and married taxpayers filling a joint return with an MAGI of $160,000 or less can claim the full Hope tax credit. The credit is reduced for taxpayers with higher MAGI.
Amount of Credit
Taxpayers receive 100 percent of the first $2,000 and 25 percent of the next $2,000 of eligible expenses. The maximum credit amount is $2,500.
Eligible Expenses
The amount paid for taxpayer, spouse or dependent's tuition and required books, supplies and equipment are eligible for the Hope tax credit. The student must be seeking an undergraduate degree or comparable credential from an accredited school at least half the time.
Effect on Taxes
Total tax liability is reduced by the amount of Hope tax credit. Up to 40 percent of the credit will be refunded if it exceeds taxes owed.
Claiming Credit
Taxpayers must file Form 1040 or 1040A. The Hope tax credit is computed on Form 8863 and carried to line 50 (Form 1040) or line 31 (Form 1040A).
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