Get some federal income tax relief on money spent on education-related expenses. These benefits are available to part-time students, full-time students, married students, and parents of dependent students. See which credit is best for you.

Hope Tax Credit

You may reduce your federal income tax by as much as $1,650 ($3,300 for students attending school in the Gulf Opportunity Zone in portions of Alabama, Louisiana and Mississippi) per student for out-of-pocket tuition and fees.

You may claim it for two years, if you:

• Have not completed the first two years of postsecondary education (generally, if you're a freshman or sophomore).
• Are enrolled in a program that leads to a degree, certificate, or other recognized educational credential.
• Are taking at least half the normal full-time course load for your major for at least one academic period beginning during the calendar year.
• Are free of any felony conviction for possessing or distributing a controlled substance.

Expenses that qualify for the Hope credit include school tuition and required fees, minus any tax-free grants or scholarships. The costs of books and supplies are usually not covered, but you should check with your school. This tax credit does not cover room and board, insurance, transportation, or medical fees.

To claim a Hope tax credit, taxpayers must file using federal tax Form 1040 or 1040A and attach Form 8863 (Education Credits); however, itemizing deductions is not a requirement.

Lifetime Learning Tax Credit

It's a tax credit of 20% of the first $10,000 paid for qualified tuition and related expenses for yourself, your spouse, or a dependent you claim an exemption for. The maximum amount of credit you could claim for 2005 was $2,000 ($4,000 for students attending school in the Gulf Opportunity Zone in portions of Alabama, Louisiana and Mississippi) for all students in the family.

You may claim the Lifetime Learning Tax Credit if your family has children enrolled at eligible institutions.

There are several differences between the Hope credit and the Lifetime Learning tax credits. The latter:

• Is not based on the student's workload and is allowed for one or more courses.
• Is not limited to students in the first two years of postsecondary education.
• Can be claimed for expenses for graduate-level degree work.
• Has no limit on the number of years for which the credit can be claimed for each student.
• Does not increase (i.e., the amount to be claimed) based on the number of students receiving qualified expenses.

To claim a Lifetime Learning credit, taxpayers must file using federal tax form 1040 or 1040A and attach Form 8863 (Education Credits); however, itemizing deductions is not a requirement.

Education Credit Program Comparison

Tuition and Fees Deduction

Taxpayers can reduce income subject to tax by up to $4,000 for tuition and related expenses. Qualifying expenses are the tuition and fees required for enrollment or attendance at an eligible college, university, or vocational school. These expenses must have been incurred by the taxpayer, the taxpayer's spouse, or the taxpayer's dependent.

To claim this deduction, taxpayers must file federal tax form 1040; however, itemizing deductions is not a requirement.

Student Loan Interest Deduction

If you took out student loans, you may be able to deduct up to $2,500 in interest paid yearly. To qualify, you should have used proceeds from the loan toward qualified higher education expenses, including tuition, fees, room, board, supplies, and other related expenses by you, your spouse, or dependent.

If you paid $600 or more in interest on a qualified student loan during the year, you will receive a Form 1098-E, Student Loan Interest Statement, from the financial institution, from a governmental unit (or any of its subsidiary agencies), from educational institutions, or any other person to whom you had paid student loan interest of $600 or more in the course of their trade or business.

To claim this deduction, taxpayers must file federal tax form 1040 or 1040A; however, itemizing deductions is not a requirement.

Katrina Emergency Tax Relief Act of 2005

This Act provides tax relief for individuals affected by hurricane Katrina. Under the Act, you may be able to claim an education credit, a student loan interest deduction, and/or a tuition and fees deduction. Download Publication 4492 from the IRS website for additional information.

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