STEP 1: Student Loan Interest Deduction

Before considering any of the three education credits, first compute the Student Loan Interest Deduction. Find the amount of student loan interest on Form 1098-E. Report this deduction on line 25 of the 2003 Form 1040 using the worksheet in the instructions. This deduction is a dollar-for-dollar deduction for student loan interest paid during the year. The maximum amount of the deduction is $2,500. The deduction is phased out for high incomes.

STEP 2: Can you even consider the Hope Credit?

If you ever used the Hope Credit before, enter the year and amount the first time you ever used it.

YEAR

AMOUNT

If you used the Hope Credit a second time, enter the year and amount the second time you ever used it.

YEAR

AMOUNT

If you used the Hope Credit a second time, then you may not use it a third time. If that is the case, then X out the Hope Credit grid below.

Complete the rest of the tax return before making the comparisons below.
For your convenience, enter the amount from Form 1098-T box 2 below.
This will be the qualifying expense for all three credits compared below.

Form 1098-T box 2

Tuition and Fees Deduction Find the qualified tuition and fees deduction amount in box 2 of Form 1098-T. The cost of textbooks and other such expenses do not count toward this deduction.

Refund or (Balance due) if you use the Tuition and Fees Deduction.

Remove the Tuition and Fees Deduction. Next test the Hope Credit unless ruled out above because of the 2 year rule.

Hope Credit Get Form 8863. Find the qualified expense in box 2 of Form 1098-T. Refer to Part I for the Hope Credit. A dependent on someone else's return cannot take the Hope Credit. The parents claiming the dependent can. Anyone filing as MFS cannot take this credit. In that case, skip this grid. If you claimed the Hope credit in two prior years, you cannot take this credit again. In that case, skip this grid. If box 9 of Form 1098-T is checked, you cannot take the Hope Credit. Qualified expenses are tuition and fees only. Qualified expenses do not include the cost of textbooks and similar expenses. Form 8863 limits the Hope Credit.

Refund or (Balance due) if you use the Hope Credit.

Lifetime Learning Credit Get Form 8863. Find the qualified expense in box 2 of Form 1098-T. Refer to Part II for the Lifetime Learning Credit. A dependent on someone else's return cannot take the Lifetime Learning Credit. The parents claiming the dependent can. Anyone filing as MFS cannot take this credit. In that case, skip this grid. Qualified expenses are tuition and fees only. Qualified expenses do not include the cost of textbooks and similar expenses. Form 8863 limits the Lifetime Learning Credit.

Refund or (Balance due) if you use the Lifetime Learning Credit.

Compare the three results. Use the credit that yields the smallest balance due or the largest refund.

Copyright © - 2004 Dutch Hawkins Mandeville, LA USA - All Rights Reserved

March 11, 2004