The HOPE Education Tax Credit is a recently retired (as of 2010) federal income tax credit for students. It has since been extended, improved and renamed the American Opportunity Credit.
About the HOPE Education Tax Credit
Up until 2010, the HOPE Education Tax Credit allowed single-filing to deduct up to $1,800 from their tax obligation for the first two years of study. The program was open to all college students (enrolled at least half-time) or their claiming parents.
The credit could be used against money spent on tuition and fees. The credit, however, could not be used for related expenses such as books, room and board or living expenses.
The American Recovery and Reinvestment Act (ARRA) of 2009 paved the way for improvements to the program, leading to the birth of the American Opportunity Credit.
About the American Opportunity Credit
Unlike the HOPE Education Tax Credit, the American Opportunity Credit isn’t limited to a subtraction from just your taxable income. Instead, it allows you a full deduction from your total federal tax obligation.
As of 2010, the credit offers a $2,500 deduction on the first $4,000 of educational expenses. These “educational expenses” has been expanded to include course materials such as books and supplies. Furthermore, the credit is refundable. This means that if your tax obligation drops below zero by applying the credit then you’ll be sent a refund for the balance (maximum refund of $1,000).
How to File
Claiming the American Opportunity Credit is easy. Simply file Form 8863 along with form 1040/1040A for your tax return. The credit will be applied automatically.