Paying for a college education may be costly. Even if you qualify for financial aid, scholarships, and grants, the costs may still add up. That is why many people may wish to take a closer look at the Hope Credit, which may be one way to reduce what you are paying out-of-pocket for your education.
What Is the Hope Credit?
The Hope Credit or Hope Scholarship Credit was in place from 1998 through 2008, providing a tax credit for eligible students. In 2009, it was renamed the American Opportunity Tax Credit and expanded in who it provides this credit for.
The Hope Credit was a tax credit issued to students in college that provided up to $1,500 in a credit that students could apply to their income taxes. This credit was applicable during their first two years of higher education. The credit was a part of the Taxpayer Relief Act of 1997.
This credit changed over time. It increased the amount students could claim to $1,800. The credit allowed either students or a parent that was claiming the student as a dependent to reduce the amount of taxes they owed through this credit. It is meant to cover qualified educational expenses, including the cost of tuition.
Is the Hope Credit the Same as American Opportunity Credit?
The Hope Credit was replaced with the American Opportunity Tax Credit. While they are similar in the tax credits they offer, there are a few differences between them, including the maximum length the credit applies for and the maximum annual credit a student may receive through them.
Length of use
The Hope Credit provided this credit to students or their parents for only the first two years of their college education. The American Opportunity Tax Credit extended this to include up to four years. Additionally, the maximum annual credit a person could receive with the Hope Credit was $1,800 (at the end of the program). This changed to $2,500 in the new version.
Phase out for income
Also notable were the phase out changes. That is, the availability of this credit was based on income with a phase out applicable for single taxpayers earning $50,000 to $60,000 or $100,000 to $120,000 for married couples filing jointly. In the American Opportunity Tax Credit, this changed to $80,000 to $90,000 for single taxpayers and $160,000 to $180,000 for married couples filing jointly.
Qualified educational expenses
When it was renamed, there were also changed to what students could use the funds for, which was called qualified educational expenses. In the Hope Credit, it could be used to cover tuition and enrollment fees only. When the new version released in 2009, this was updated to include tuition, enrollment fees, as well as books needed for courses.
Tax benefits
The Hope Credit reduced the amount of taxes the student or the parents paid based on the amount of funds spent. That is, 100% of the first $1,200 in qualified expenses, plus another 50% of the next $1,200 in qualified expenses, was used.
With the American Opportunity Tax Credit, the benefit was up to 40% or $1,000 each year, being refundable. That means that even if the student did not owe any taxes, they could receive that benefit. The credit calculation in this law was 100% for the first $2,000 in qualifying expenses and then 25% for the next $2,000 in qualifying expenses.
As noted, the Hope Credit is no longer in place. Instead, the American Opportunity Tax Credit now applies. Here is a look at the differences between the two.
Hope Credit VS American Opportunity Tax Credit
| Hope Credit | American Opportunity Tax Credit | |
| Availability | Not available anymore | Still available |
| Max Years Available | Through first two years of school | First four years of school |
| Max Amount of Credit per Year | $1,800 | $2,500 |
| Max Out Income Levels | $50,000 to $60,000 for single taxpayers, and $100,000 and $120,000 for married couples filing jointly | $80,000 to $90,000 for single taxpayers, and $160,000 and $180,000 for a married couple filing jointly |
| Purpose | Enrollment fees and tuition | Course related books, tuition, enrollment fees |
| Benefits for Taxes | reduces amount owed by taxpayer | Up to 40% or $1,000 per year of the AOTC is refundable |
| How Calculated | 100% of the first $1,200 in qualifying expenses + 50% of the next $1,200 in qualifying expenses | 100% of the first $2,000 in qualifying expenses + |
Am I Eligible for the Hope Credit?
You may be eligible for the American Opportunity Tax Credit (the Hope Credit is no longer available) if you meet specific criteria set by the law. Eligibility is based on the following factors:
- You are pursuing a degree program or another recognized educational credential
- You are enrolled at least half time for at least one academic period during the tax year for which you are applying for the credit
- You have not yet finished the first four years of your post-secondary education by the start of the tax year for which you are applying
- You have not claimed this credit or the former Hope Credit for more than four tax years
- You do not have a felony drug conviction
If you are unsure if you qualify for this tax credit, it may be beneficial to speak to your tax professional about it. Your school’s student aid office or bursar may also provide you with information about what you paid to the school that may fall under the credits for this program.
How Many Times May You Claim the Hope Credit?
Students who wish to use the American Opportunity Tax Credit, formerly known as the Hope Credit, may due so for four years during their educational studies. Students may only qualify for this credit if they meet other eligibility criteria and they cannot claim it for more than four years.
How Do You Claim the American Opportunity Tax Credit?
For those who believe they have met the requirements and eligibility for the American Opportunity Tax Credit, an individual needs to have a Form 1098-T, Tuition Statement from an eligible educational institution. This is typically sent from the school prior to January 31 of the year following the tax year they wish to apply the credit for. It is then possible to learn about all qualified educational expenses by using Publication 970 from the IRS. With this information, it is then possible to finish Form 8863.
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FAQ:
What Is the Hope Credit?
The Hope Credit or Hope Scholarship Credit was in place from 1998 through 2008, providing a tax credit for eligible students. In 2009, it was renamed the American Opportunity Tax Credit and expanded in who it provides this credit for.
Is the Hope Credit the Same as American Opportunity Credit?
The Hope Credit was replaced with the American Opportunity Tax Credit. While they are similar in the tax credits they offer, there are a few differences between them, including the maximum length the credit applies for and the maximum annual credit a student may receive through them.
How Many Times May You Claim the Hope Credit?
Students who wish to use the American Opportunity Tax Credit, formerly known as the Hope Credit, may due so for four years during their educational studies. Students may only qualify for this credit if they meet other eligibility criteria and they cannot claim it for more than four years.
How Do You Claim the American Opportunity Tax Credit?
For those who believe they have met the requirements and eligibility for the American Opportunity Tax Credit, an individual needs to have a Form 1098-T, Tuition Statement from an eligible educational institution. This is typically sent from the school prior to January 31 of the year following the tax year they wish to apply the credit for.