Tax Breaks

Did You Miss This Tax Break for College Costs?

You may be able to claim an expanded version of the Hope credit if your child attends college in the Midwest.

Is there really a special tax break for college costs if your child goes to school in the Midwest? I’m about to file my tax return but wanted to check on this first.

People throughout the country can benefit from the American Opportunity credit, an expanded tax break for college costs that was created as part of the economic-stimulus law. It provides a tax credit for 2009 and 2010 of up to $2,500 for tuition and fees in the first four academic years of college. For most people, it replaces the Hope credit, which provided less money and had lower income limits.

However, some students who go to college in the Midwest can still claim an expanded version of the Hope credit, worth $3,600 for the first two years of college and more valuable than the new American Opportunity credit. They get a special deal if their college is in one of the parts of seven states -- Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska and Wisconsin -- that had been declared Midwest Disaster Areas due to floods in 2008. Students beyond the first two years of college can take a supercharged version of the Lifetime Learning credit, which for 2009 has been increased from 20% to 40% of the first $10,000 in eligible expenses for those midwestern states, doubling the maximum credit from $2,000 to $4,000 per tax return.

See table 4.2 in IRS Publication 970 for a list of counties that qualify. In those areas, you can also take the Hope credit for room and board in 2009 -- not just for tuition, fees and books. To qualify, students just need to attend college in one of those areas; their families don’t have to live in one of those states. IRS Publication 970, Tax Benefits for Education, has details.

The income limits to qualify for the Hope credit remain lower than they are for the American Opportunity credit, no matter where you live. The American Opportunity credit phases out for individual filers with modified adjusted gross income between $80,000 and $90,000 and for joint filers with income between $160,000 and $180,000. Eligibility for the Hope and Lifetime Learning credits phases out if your modified adjusted gross income is between $50,000 and $60,000 for singles and $100,000 and $120,000 for joint filers. Those limits apply to the parents’ income if the student is claimed as a dependent on their tax return.

If you already filed your 2009 return but didn’t realize you were eligible for the expanded Hope or American Opportunity credit , you can file an amended return (Form 1040x) and get a refund.

For more information about special tax breaks for college costs in 2009 and 2010, see Get a Bigger Tax Break for College Expenses and Make the Most of Tax Breaks for College Expenses.

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your second stimulus check.
January 18, 2021
Don’t Have a Pension? The SECURE Act Could Help
retirement planning

Don’t Have a Pension? The SECURE Act Could Help

If you’re worried about retirement, the SECURE Act has a lot to offer. It has several provisions to allow people to save more, for more years — and it…
January 22, 2021
When Could We Get a Third Stimulus Check?
Coronavirus and Your Money

When Could We Get a Third Stimulus Check?

President Biden and others in Congress are pushing for a third-round of stimulus checks, but it might be a while before we get them.
January 20, 2021

Recommended

10 States With the Highest Sales Taxes
Tax Breaks

10 States With the Highest Sales Taxes

Before you embark on a shopping spree in any of the 10 worst states for sales taxes, make extra room in your budget.
January 25, 2021
The 10 Least Tax-Friendly States for Middle-Class Families
state tax

The 10 Least Tax-Friendly States for Middle-Class Families

Failing to consider state and local taxes before moving your family to another state could cost you thousands of dollars each year.
January 25, 2021
The 10 Most Tax-Friendly States for Middle-Class Families
state tax

The 10 Most Tax-Friendly States for Middle-Class Families

If a move from one state to another is in your future, you could save big bucks by relocating to one of these states where the tax bite is light for m…
January 25, 2021
9 States with No Income Tax
Tax Breaks

9 States with No Income Tax

If you choose to live in these states, every penny you earn is safe from state income tax (although two of the states do tax some dividends and intere…
January 25, 2021