Hope Scholarship

The Hope Scholarship is stupid tax policy. But it’s a great way to put $1,500 in your pocket if you’re paying college tuition. Here’s how it works.

§25A of the Internal Revenue Code, added in the Tax Reform Act of 1997, provides that anyone who pays college tuition for himself, his spouse, or his dependent may claim a credit of 100% of the first $1,000 of tuition and 50% of the next $1,000 of tuition. The credit is good for only two years of tuition, it’s good only for a student who’s enrolled at least half time, and it declines in value as your adjusted gross income increases, as follows:

Single Taxpayer
Married Couple
Begins to decline at:
Worth zero above:

The reason I say it’s stupid policy is that it makes the first $1,000 of tuition entirely free of cost, and it’s never smart to encourage people to waste money. That’s not your problem, though. What you need to do is to make sure that if you’re going to be paying college tuition that you’re also eligible to claim the exemption. The Hope Scholarship is unavailableto you unless you are able to claim the student as an exemption.

The Hope Scholarship functions in tandem with the Lifetime Learning Credit. In any given year, you must elect one or the other. You can never claim both with respect to the same student in the same tax year. You can, however, claim the Hope Scholarship for one student and the Lifetime Learning Credit for another student, all in the same year.