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Online tax software Publication 970 - Additional Material Table of Contents AppendicesAppendix A. Online tax software Illustrated Example of Education Credits Glossary Appendices The following appendices are provided to help you claim the education benefits that will give you the lowest tax. Online tax software Appendix A—An illustrated example of education credits, including a filled-in Form 8863 showing how to claim both the American opportunity credit and lifetime learning credit for 2013. Online tax software Appendix B—A chart summarizing some of the major differences between the education tax benefits discussed in this publication. Online tax software It is intended only as a guide. Online tax software Look in this publication for more complete information. Online tax software   Appendix A. Online tax software Illustrated Example of Education Credits Dave and Valerie Jones are married and on their 2013 joint tax return they claim exemptions for their two dependent children, Sean (age 21, social security number: 000-00-0001) and Carey (age 18, social security number: 000–00–0002). Online tax software Their modified adjusted gross income (MAGI) on Form 1040, line 38 is $110,000. Online tax software Because Dave and Valerie have unusually high itemized deductions, their taxable income is $10,000 and their tax before credits is $1,000. Online tax software Sean enrolled as a full-time graduate student in August 2013 at California State College. Online tax software He graduated with his bachelor's degree in 2012 and did not attend school from January 2013 through July 2013. Online tax software His parents claimed the Hope Scholarship Credit for Sean for 2008 and the American opportunity credit for Sean for 2010, 2011, and 2012. Online tax software Carey enrolled full time as a freshman at the same college in January 2013 to begin working on her bachelor's degree. Online tax software In 2013, Dave and Valerie paid $7,000 in tuition for Sean and $8,500 in tuition for Carey. Online tax software California State College issued two Forms 1098-T, one for Sean and one for Carey, and sent them to the Joneses' residence. Online tax software California State College reports amounts billed in 2013 instead of amounts paid during 2013. Online tax software In completing Form 8863, the Joneses use the amounts they paid. Online tax software Neither Sean nor Carey has been convicted of a felony for possession or distribution of a controlled substance before the end of 2013. Online tax software Dave and Valerie figure their education credits by completing Form 8863. Online tax software They begin Form 8863 on page 2 before completing Part I on page 1. Online tax software Because the Joneses have two eligible students, they will complete page 2 twice, once for their son, Sean, and once for their daughter, Carey. Online tax software The Joneses decide to complete Part III for Carey first, as shown later. Online tax software They carry over the amount of $2,500 entered on Part III, line 30, to Part I, line 1. Online tax software The Joneses complete a separate Part III for their son Sean. Online tax software They check the “Yes” box on line 23, determine that Sean is not eligible for the American opportunity credit, and go to line 31 as instructed. Online tax software They figure their line 31 adjusted qualified education expenses for Sean to be $7,000. Online tax software Once they have completed Part III for each student, they figure their credits. Online tax software The Joneses figure their refundable American opportunity credit of $1,000 by completing Form 8863, Part I, lines 1 through 8. Online tax software They enter the amount from line 8, $1,000, on line 66 of their Form 1040. Online tax software The Joneses enter $7,000 on Part II, line 10, of Form 8863 and figure their tentative lifetime learning credit for 2013 to be $1,400 (line 12). Online tax software They cannot claim the full amount because their MAGI of $110,000 is greater than $107,000. Online tax software They enter the reduced amount of $1,190 (figured on Part II, line 18) on the Credit Limit Worksheet, line 1. Online tax software The $1,190 is added to their nonrefundable American opportunity credit ($1,500 on line 2 of the Credit Limit Worksheet) for a total nonrefundable credit of $2,690. Online tax software The Joneses enter $1,000 on line 7 of the Credit Limit Worksheet, which is the smaller of their tax from line 46 of their Form 1040 (which is $1,000) or the $2,690 on line 3 of the Credit Limit Worksheet. Online tax software They enter $1,000 on line 19, Part II of Form 8863 and on line 49 of Form 1040. Online tax software This image is too large to be displayed in the current screen. Online tax software Please click the link to view the image. Online tax software Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Online tax software Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 8,500 2. Online tax software Less adjustments:     a. Online tax software Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Online tax software Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Online tax software Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Online tax software Total adjustments (add lines 2a, 2b, and 2c) 0 4. Online tax software Adjusted qualified education expenses. Online tax software Subtract line 3 from line 1. Online tax software If zero or less, enter -0- 8,500 This image is too large to be displayed in the current screen. Online tax software Please click the link to view the image. Online tax software Form 1098-T Adjusted Qualified Education Expenses Worksheet (Form 8863 instructions) 1. Online tax software Total qualified education expenses paid for or on behalf of the student in 2013 for the academic period 7,000 2. Online tax software Less adjustments:     a. Online tax software Tax-free educational assistance received in 2013 allocable to the academic period   0     b. Online tax software Tax-free educational assistance received in 2014 (and before you file your 2013 tax return) allocable to the academic period   0     c. Online tax software Refunds of qualified education expenses paid in 2013 if the refund is received in 2013 or in 2014 before you file your 2013 tax return   0   3. Online tax software Total adjustments (add lines 2a, 2b, and 2c) 0 4. Online tax software Adjusted qualified education expenses. Online tax software Subtract line 3 from line 1. Online tax software If zero or less, enter -0- 7,000 Credit Limit Worksheet (Form 8863 instructions) Nonrefundable Credit Worksheet 1. Online tax software Enter the amount from Form 8863, line 18 1. Online tax software 1,190 2. Online tax software Enter the amount from Form 8863, line 9 2. Online tax software 1,500 3. Online tax software Add lines 1 and 2 3. Online tax software 2,690 4. Online tax software Enter the amount from: Form 1040, line 46; or Form 1040A, line 28 4. Online tax software 1,000 5. Online tax software Enter the amount from either: Form 1040, lines 47 and 48, and the amount from Schedule R included on Form 1040, line 53; or Form 1040A, lines 29 and 30 5. Online tax software 0 6. Online tax software Subtract line 5 from line 4 6. Online tax software 1,000 7. Online tax software   Enter the smaller of line 3 or line 6 here and on Form 8863, line 19 7. Online tax software 1,000 This image is too large to be displayed in the current screen. Online tax software Please click the link to view the image. Online tax software Form 8863 for Dave and Valerie Jones This image is too large to be displayed in the current screen. Online tax software Please click the link to view the image. Online tax software Carey Jones page 2 This image is too large to be displayed in the current screen. Online tax software Please click the link to view the image. Online tax software Filled-in Form 8863 Jones page 2 Appendix B. Online tax software Highlights of Education Tax Benefits for Tax Year 2013 This chart highlights some differences among the benefits discussed in this publication. Online tax software See the text for definitions and details. Online tax software Do not rely on this chart alone. Online tax software    Caution:You generally cannot claim more than one benefit for the same education expense. Online tax software   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What is your  benefit? Amounts received may not be taxable   Credits can reduce the amount of tax you have to pay. Online tax software    40% of the credit may be refundable (limited to $1,000 per student). Online tax software Credits can reduce amount of tax you must pay Can deduct interest paid Can deduct expenses Earnings not  taxed Earnings not taxed No 10%  additional tax on early distribution Interest not taxed Employer benefits not taxed Can deduct expenses What is the annual limit? None $2,500 credit per student $2,000 credit per tax return     $2,500 deduction $4,000 deduction $2,000 contribution per beneficiary None Amount of qualified  education expenses Amount of qualified  education expenses $5,250 exclusion Amount of qualifying work-related education expenses What expenses  qualify besides  tuition and required enrollment fees? Course-related expenses such as fees, books, supplies, and equipment Course-related books, supplies, and equipment Amounts paid for required books, etc. Online tax software , that must be paid to the educational institution, etc. Online tax software , are required fees Books Supplies Equipment  Room & board  Transportation  Other necessary expenses  None Books Supplies Equipment  Expenses for special needs services  Payments to QTP  Higher education: Room & board if  at least half-time  student  Elem/sec (K–12) education: Tutoring Room & board Uniforms Transportation Computer  access Supplementary expenses Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Books Supplies Equipment  Room & board if  at least half-time student  Expenses for special needs services Payments to Coverdell ESA  Payments to QTP Books Supplies Equipment Transportation  Travel  Other necessary expenses   Scholarships,  Fellowships, Grants, and  Tuition  Reductions American Opportunity Credit Lifetime Learning Credit Student Loan Interest Deduction Tuition and Fees Deduction Coverdell ESA† Qualified Tuition Program (QTP)† Education Exception to Additional Tax on Early IRA Distributions† Education Savings Bond Program† Employer- Provided Educational Assistance† Business Deduction for Work-Related Education What education qualifies? Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate  Courses to acquire or improve job skills    Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate  K–12 Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Undergraduate & graduate Required by employer or law to keep present job, salary, status  Maintain or improve job skills What are some of the other  conditions that  apply? Must be in degree or vocational program  Payment of tuition and required fees must be allowed under the grant Can be claimed for only 4 tax years (which includes years Hope Scholarship Credit claimed)  Must be enrolled at least half-time in degree program  No felony drug conviction(s)  Must not have completed first 4 years of postsecondary education before end of preceding tax year. Online tax software   No other conditions Must have been at least half-time  student in degree program Cannot claim both deduction & education credit for same student in same year Assets must be distributed at age 30 unless special  needs beneficiary No other conditions No other conditions Applies only to qualified series  EE bonds issued after 1989 or series I bonds No other conditions Cannot be to  meet minimum educational requirements of present trade/business  Cannot qualify  you for new trade/business   In what income  range do benefits  phase out? No phaseout $80,000 – $90,000  $160,000 – $180,000 for joint returns $53,000 – $63,000  $107,000 – $127,000 for joint returns $60,000 – $75,000  $125,000 –  $155,000 for  joint returns  $60,000 – $80,000  $130,000 –  $160,000 for  joint returns  $95,000 – $110,000  $190,000 – $220,000 for  joint returns No phaseout No phaseout   No phaseout No phaseout † Any nontaxable distribution is limited to the amount that does not exceed qualified education expenses. Online tax software Glossary The education benefits included in this publication were enacted over many years, leading to a number of common terms being defined differently from one benefit to the next. Online tax software For example, an eligible educational institution means one thing when determining if earnings from a Coverdell education savings account are not taxable and something else when determining if a scholarship or fellowship is not taxable. Online tax software For each term listed below that has more than one definition, the definition for each education benefit is listed. Online tax software Academic period:   A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Online tax software If an educational institution uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Online tax software Adjusted qualified education expenses (AQEE):    Qualified education expenses (defined later) reduced by any tax-free educational assistance, such as a tax-free scholarship or employer-provided educational assistance. Online tax software They must also be reduced by any qualified education expenses deducted elsewhere on your return, used to determine an education credit or other benefit, or used to determine a tax-free distribution. Online tax software For information on a specific benefit, see the appropriate chapter in this publication. Online tax software Candidate for a degree:   A student who meets either of the following requirements. Online tax software Attends a primary or secondary school or pursues a degree at a college or university, or Attends an accredited educational institution that is authorized to provide: A program that is acceptable for full credit toward a bachelor's or higher degree, or A program of training to prepare students for gainful employment in a recognized occupation. Online tax software Designated beneficiary:   The individual named in the document creating the account/plan who is to receive the benefit of the funds in the account/plan. Online tax software Eligible educational institution:    American opportunity credit. Online tax software Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Online tax software It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Online tax software Coverdell education savings account (ESA). Online tax software Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Online tax software It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Online tax software Also included is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Online tax software Education savings bond program. Online tax software Same as American opportunity credit in this category. Online tax software IRA, early distributions from. Online tax software Same as American opportunity credit in this category. Online tax software Lifetime learning credit. Online tax software Same as American opportunity credit in this category. Online tax software Qualified tuition program (QTP). Online tax software Same as American opportunity credit in this category. Online tax software Scholarships and fellowships. Online tax software An institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Online tax software Student loan, cancellation of. Online tax software Same as Scholarships and fellowships in this category. Online tax software Student loan interest deduction. Online tax software Any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Online tax software It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Online tax software Also included is an institution that conducts an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Online tax software Tuition and fees deduction. Online tax software Same as American opportunity credit in this category. Online tax software Eligible student:    American opportunity credit. Online tax software A student who meets all of the following requirements for the tax year for which the credit is being determined. Online tax software Did not have expenses that were used to figure an American opportunity or Hope Scholarship Credit in any 4 earlier tax years. Online tax software Had not completed the first 4 years of postsecondary education (generally the freshman through senior years). Online tax software For at least one academic period beginning in the tax year, was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution. Online tax software Was free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. Online tax software Lifetime learning credit. Online tax software A student who is enrolled in one or more courses at an eligible educational institution. Online tax software Student loan interest deduction. Online tax software A student who was enrolled at least half-time in a program leading to a postsecondary degree, certificate, or other recognized educational credential at an eligible educational institution. Online tax software Tuition and fees deduction. Online tax software A student who is enrolled in one or more courses at an eligible educational institution. Online tax software Half-time student:   A student who is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Online tax software Modified adjusted gross income (MAGI):    American opportunity credit. Online tax software Adjusted gross income (AGI) as figured on the federal income tax return, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Online tax software Coverdell education savings account (ESA). Online tax software Same as American opportunity credit in this category. Online tax software Education savings bond program. Online tax software Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any savings bond interest exclusion and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, Exclusion of income by bona fide residents of Puerto Rico, Exclusion for adoption benefits received under an employer's adoption assistance program, Deduction for student loan interest, Deduction for tuition and fees, and Deduction for domestic production activities. Online tax software Lifetime learning credit. Online tax software Same as American opportunity credit in this category. Online tax software Student loan interest deduction. Online tax software Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any student loan interest deduction, tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Online tax software Tuition and fees deduction. Online tax software Adjusted gross income (AGI) as figured on the federal income tax return without taking into account any tuition and fees deduction, or domestic production activities deduction, and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Online tax software Phaseout:   The amount of credit or deduction allowed is reduced when modified adjusted gross income (MAGI) is greater than a specified amount of income. Online tax software Qualified education expenses:   See pertinent chapter for specific items. Online tax software    American opportunity credit. Online tax software Tuition and certain related expenses (including student activity fees) required for enrollment or attendance at an eligible educational institution. Online tax software Books, supplies, and equipment needed for a course of study are included even if not purchased from the educational institution. Online tax software Does not include expenses for room and board. Online tax software Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program. Online tax software Coverdell education savings account (ESA). Online tax software Expenses related to or required for enrollment or attendance of the designated beneficiary at an eligible elementary, secondary, or postsecondary school. Online tax software Many specialized expenses included for K–12. Online tax software Also includes expenses for special needs services and contribution to qualified tuition program (QTP). Online tax software Education savings bond program. Online tax software Tuition and fees required to enroll at or attend an eligible educational institution. Online tax software Also includes contributions to a qualified tuition program (QTP) or Coverdell education savings account (ESA). Online tax software Does not include expenses for room and board. Online tax software Does not include expenses for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program. Online tax software IRA, early distributions from. Online tax software Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Online tax software Also includes expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. Online tax software Lifetime learning credit. Online tax software Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Online tax software Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Online tax software Does not include expenses for room and board. Online tax software Does not include expenses for courses involving sports, games, or hobbies (including noncredit courses) that are not part of the student's postsecondary degree program, unless taken by the student to acquire or improve job skills. Online tax software Qualified tuition program (QTP). Online tax software Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, plus certain limited costs of room and board for students who are enrolled at least half-time. Online tax software Includes expenses for special needs services and computer access. Online tax software Scholarships and fellowships. Online tax software Expenses for tuition and fees required to enroll at or attend an eligible educational institution, and course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Online tax software Course-related items must be required of all students in the course of instruction. Online tax software Student loan interest deduction. Online tax software Total costs of attending an eligible educational institution, including graduate school (however, limitations may apply to the cost of room and board allowed). Online tax software Tuition and fees deduction. Online tax software Tuition and certain related expenses required for enrollment or attendance at an eligible educational institution. Online tax software Student-activity fees and expenses for course-related books, supplies, and equipment are included only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. Online tax software Recapture:   To include as income on your current year's return an amount allowed as a deduction in a prior year. Online tax software To include as tax on your current year's return an amount allowed as a credit in a prior year. Online tax software Rollover:   A tax-free distribution to you of cash or other assets from a tax-favored plan that you contribute to another tax-favored plan. Online tax software Transfer:   A movement of funds in a tax-favored plan from one trustee directly to another, either at your request or at the trustee's request. Online tax software Prev  Up  Next   Home   More Online Publications