A column on personal finance prepared by the Virginia Society of Certified Public Accountants


(December 22, 2003) – When it comes to reducing your tax liability, the more questions you ask, the more you can learn and save. The following frequently asked questions and the responses provided by the Virginia Society of CPAs will give you an understanding of how the college tuition deduction and education tax credits work so you can determine your eligibility for claiming them on your 2003 return.

What do I need to know about the Hope Scholarship credit?

The Hope Scholarship credit amounts to 100 percent of the first $1,000 of a college student’s tuition and fees (not including room and board or books) plus 50 percent of the next $1,000 at an eligible educational institution. So, the maximum credit is $1,500 for each qualifying student per year. The Hope credit can be claimed for each of the first two years of college studies for each student. The student must be enrolled for at least half the normal full-time workload for his or her courses of study for at least one academic period beginning during the year.

What are the income limitations for the Hope credit?

For the 2003 tax year, the Hope credit is gradually reduced if your modified adjusted gross income (AGI) exceeds $41,000 for single filers and $83,000 for joint returns. Once a single filer’s income reaches $51,000, the credit is eliminated; for joint filers, the cap is $103,000. Regardless of your income, you cannot claim the credit if you are married filing a separate return.

Who qualifies for the Lifetime Learning credit?

The Lifetime Learning credit is designed to help subsidize college expenses after the first two years. This credit, which is less restrictive than the Hope credit, is equal to 20 percent of qualified expenses. For 2003, $10,000 is the maximum amount of qualified tuition and expenses that can be used to calculate the Lifetime Learning credit; therefore, the maximum credit is $2,000 for 2003. The income phase-out rules are the same as for the Hope credit.

The Lifetime Learning maximum is calculated per taxpayer and does not vary based on the number of students in a taxpayer’s family. Keep in mind that it doesn’t matter whether the student attends college full- or part-time or whether a course leads to a degree. The credit is available in any year the Hope credit is not claimed and is available for an unlimited number of years.

What if two or more children attend college at the same time?

A Hope credit of up to $1,500 can be claimed for each qualifying student. For example, if you have twins who are both college freshman, you can claim a Hope credit for each, for a total of up to $3,000. However, the Lifetime Learning credit has an annual limited of $2,000 per family, regardless of how many household members are eligible.

How does the deduction for college tuition work?

Higher-income taxpayers who expect to receive little, if any, benefit from the Hope or Lifetime Learning credits may be able to get some help from the relatively new tax deduction for college tuition. Regardless of how many students in your household, you can deduct up to $3,000 of college tuition and fees paid for you, your spouse, or dependents for the 2003 tax year. This is an above-the-line deduction, which means you don’t have to itemize in order to claim it. This amount increases to $4,000 for 2004 and 2005, but is scheduled for repeal after 2005.

Keep in mind that you cannot take the tuition deduction and claim a Hope credit or Lifetime Learning credit for the same student.

What are the income requirements for the college tuition deduction?

If your adjusted gross income (AGI) for 2003 is less than or equal to $130,000 if you’re married and filing jointly, or $65,000 if you are a single filer, you qualify for the tuition deduction. However, there is no phase-out rule for this deduction in 2003; once you exceed these limits, you are not eligible.

For 2004 and 2005 tax years, the college tuition deduction increases to $4,000, and a phase-out applies. Those with AGIs between $130,000 and $160,000 (joint) and $65,000 and $80,000 (single) can claim a deduction of up to $2,000 for the year. The deduction is not available to those with AGIs that exceed these ranges. Like the tax credits, you cannot claim the deduction if you’re married and filing separately from your spouse.

How do I choose between the tuition credits and the deduction?

CPAs say it’s important to remember that the most lucrative education tax breaks are the Hope Scholarship credit and Lifetime Learning credit. Tax credits are always more valuable than deductions. A $1,000 credit saves you $1,000 in taxes. In the 28 percent bracket, a $1,000 deduction would only save you $280.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at

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