Changes to the Hope and Lifetime Learning Tax Credits

Good news for tax filers who claim the Hope or Lifetime Learning Tax Credit.

This past December, Congress passed legislation to extend the Tuition and Fees Tax Deduction. These changes are in effect for the 2006 tax year.

• Hope Tax Credit was increased from $1,500 to $1,650.
• Modified Adjusted Gross Income (MAGI) eligibility limits for the Hope and Lifetime Tax Credits were increased by $2,000 for single taxpayers and $3,000 for married taxpayers filing jointly.

Note: For 2006, the amount of your Hope or Lifetime Learning tax Credit is phased out (gradually reduced) if your MAGI is between $45,000 and $55,000 ($90,000 and $110,000 if you file a joint return). You cannot claim an education credit if your MAGI is $55,000 or more ($110,000 or more if you file a joint return). This reflects the increased MAGI passed by Congress.

If you file using the IRS e-file, the software has been updated to enable you to easily claim this deduction with the new changes. However, if you file using the paper 1040 and plan to claim the Hope Tax Credit, you must take some steps outlined that are not included in the tax form. Because the legislation was still pending at the time the paper form was created, the instructions are not up to date to include the new changes.

Instructions have been posted to the IRS website on how to claim the tax benefits passed by Congress in December.

The Hope and Lifetime Learning Tax Credits are based on the amount of qualified education expenses paid to an eligible postsecondary educational institution for the student in 2006 for academic periods beginning in 2006 and the first 3 months of 2007.

For more information about Education Tax Credits, visit www.irs.gov or consult with your tax attorney or accountant.