For the fiscal year beginning in 2009 and 2010, the Stimulus Act includes taxpayer-friendly changes to the HOPE Scholarship tax credit for higher education (Hope Credit). The Hope credit is also temporarily renamed American Opportunity Credit (Credit Opportunity). Under the rules renovated Credit Opportunity equals 100% of first $ 2,000 of qualified post secondary education expenses paid during the year, over 25% of first $ 2,000. Thus, the maximum annual credit is $ 2,500. Under previous law, the maximum Hope credit for 2009 was only $ 1,800, and would probably be about the same for 2010.

Credit Opportunity pays for tuition, fees, and course materials (but not room and board) for the first four years of postsecondary education in a degree or certificate program. Not available if the student has already completed four years worth of academic hours from the beginning of that year. Under previous law, the Hope Credit is only allowed during the first two years of postsecondary education, and the cost of course materials does not count as a qualified expense. Credit Opportunity only allowed for one year, when the student takes at least half the full time load for at least one academic period from that year (as in the previous norms of the law of credit Hope). Moreover, as under the previous law, married persons filing separately are not eligible. The Opportunity Credit is subject to the phasing of the rules, but are much more lenient than the rules of the law before the Hope credit. The Credit Opportunity phase out wide for singles between modified adjusted gross income (MAGI) of $ 80,000 and $ 90,000. The phase-out range for married joint taxpayers between MAGI of $ 160,000 and $ 180,000. These ranges also apply for 2010 without adjustment for inflation. Under the law of the rules before the Hope credit, the elimination of range for 2009 would have been $ 50,000 – $ 60,000 and $ 100,000 – $ 120,000, and the ranks for 2010, probably would remain the same. For this purpose, MAGI is defined as average adjusted gross income (AGI) increased income from outside the U.S. that was excluded from taxable income.

Credit Opportunity is allowed to offset any taxpayer’s federal tax liability, including any AMT. In addition, up to 40% of Credit Opportunity may be refundable, which means you can receive a refund even if you do not have taxes withheld or make estimated payments. However, the privilege of your refund is not allowed to taxpayers who fall into the dreaded Kiddie Tax rules (which potentially can reach students who are up to 23 years of age from year-end). Finally, the limitations of its special rebate applies to residents of U.S. possessions (including partners with Puerto Rico and the Northern Mariana Islands). The new law makes no change in the lifetime learning tax credit for higher education (lifetime credit) rules. As you know, credit life can be up to $ 2,000 (based on 20% up to $ 10,000 of qualified tuition and fees). As before, the lifetime credit can help offset tuition costs of graduate school enrollment and education non-graduate and professional education and certification courses.

Note that for 2009, the lifetime credit is phased out between MAGI of $ 50,000 and $ 60,000 for single taxpayers and between MAGI of $ 100,000 and $ 120,000 for couples filing jointly. Obviously, the elimination of ranks for Credit Opportunity are considerably higher.