TAX CREDITS
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The Taxpayer Relief Act of 1997 provides a number of tax benefits
for students and their families paying for educational costs. These
benefits include education tax credits, a new education IRA, withdrawals
from traditional IRAs for education expenses and a deduction for
student loan interest. The following information will help you determine
which benefits apply to you and your family so that you can plan
for your federal income tax return. |
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The
Lyme
Academy
has provided the following information as a general overview only.
Please
check with a certified accountant or your tax professional
for current updates.
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HOPE Scholarship |
| During the first two years of post-secondary education, students
or parents can take a Hope Scholarship tax credit of up to $1,500
per student per year for tuition & related expenses paid after
December 31, 1997. The tax credit will equal 100% of the first $1,000
of tuition and fees required for enrollment and attendance (not room
or board) and 50% of the next $1,000 paid during the applicable tax
year to an institution that participates in the U.S. Department of
Education student aid programs. To qualify, the student must have
earned a high school diploma or equivalent degree, be enrolled at
least half-time for one academic period during the tax year, and
must not have been convicted of a federal or state drug felony.
The Scholarship is available to individuals with modified
adjusted gross income (AGI) under $40,000 (phasing out between
$40,000 & $50,000), or under $80,000 for joint filers
(phasing out between $80,000 & $100,000). Eligible family
members include the taxpayer, the taxpayer’s spouse and the
taxpayer’s dependent(s). You cannot combine the Hope Scholarship
Credit with the Lifetime Learning Credit or the Education
IRA in the same year for the same child.
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LIFETIME LEARNING CREDIT (LLC) |
Taxpayers can receive a tax credit up to $5,000 through 2002 (maximum
annual credit of $1,000) and up to $10,000 beginning after 2002 (maximum
annual credit of $2,000) for qualified tuition and expenses. Expenses
that qualify are tuition and fees for undergraduate, graduate or
professional degree courses for students enrolled at least half time
in a degree or certificate program. Tuition and fees for courses
at an eligible institution to acquire or improve job skills are also
eligible, even if the student is enrolled on a less than half-time
basis.
Lifetime Learning Credit is available to individuals with modified adjusted
gross income (AGI) up to $40,000 (phasing out between $40,000 and $50,000),
or up to $80,000 for joint filers (phasing out between $80,000 and $100,000).
Eligible family members include the taxpayer, their spouse and the taxpayer’s
dependent(s). Educational expenses paid after June 30, 1998, for an academic
period after that date are eligible for credit for an unlimited number
of tax years.
You cannot combine the Hope Scholarship Credit with the Lifetime
Learning Credit or the Education IRA in the same year for the same
child.
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IRA Withdrawals |
| IRA withdrawals before age 59 1/2 are now allowed without early
withdrawal penalty, if, funds are to be used for education expenses
for academic periods beginning on or after January 1, 1998 . There are no income
requirements. IRA withdrawals may be used for yourself, your spouse
or any child or grandchild of either individual. |
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Education IRAs |
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Qualified taxpayers will be able to establish Education IRAs and
contribute up to $500 nondeductible per calendar year for each
designated beneficiary under age 18. The beneficiary need not be
your dependent child.
IRA withdrawals are tax-free and penalty-free, as long as moneys are
used for qualified education expenses. The Education IRA contribution
maximum of $500 per year is in addition to the current $2,000 annual
standard or Roth IRA contribution amount. You may not contribute to an
Education IRA if, during the same tax year, you have made contributions
to a qualified state pre-paid tuition program for the same beneficiary.
The tax credit is available for individuals with modified AGI
under $95,000 (phasing out between $95,000 & $110,000) and
joint filers with modified AGI under $150,000 (phasing out between
$150,000 & $160,000). You cannot combine the Hope Scholarship
Credit with the Lifetime Learning Credit or the Education IRA in
the same year for the same child.
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STUDENT
LOAN INTEREST DEDUCTIONS |
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Qualified individuals will be able to deduct a portion
of their education loan interest up to: Amount Year $1,000 1998,
$1,500 1999, $2,000 2000, $2,500 2001, and after.
Interest paid during the first 60 months of scheduled repayment may be
deductible. Deductions for student loan interest may be made for interest
due and paid after 1997.
The tax credit is available for individuals with modified AGI under $40,000
(phasing out between $40,000 and $55,000) and joint filers with modified
AGI under $60,000 (phasing out between $60,000 and $75,000).
Example:
Sally took out a student loan in 1994. Sally has paid her monthly student
loan payments as scheduled, since January 1, 1995 . Sally can now deduct
the interest on the 12 payments due in 1999. Sally cannot deduct the
interest on any later payments because they will occur after the initial
60-month period (January 1, 1994 to December 31, 1999) has ended. Sally’s
interest deduction for 1999 cannot exceed $1,000.
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