The following appendices include an illustrated example of how to use the Form 8863 when claiming both education tax credits at the same time and a chart reflecting some of the major differences between the many tax benefits for higher education that are outlined in this publication.

1. Appendix A-- An Illustrated Example of Education Credits including a filled-in Form 8863 showing how to claim both the Hope credit and lifetime learning credit for 2001.
2. Appendix B-- A chart summarizing some of the differences between the different higher education tax benefits discussed in this publication. It is intended only as a guide. Look in the publication for more complete information.
   

Appendix A. Illustrated Example of Education Credits

Dave and Valerie are married and file a joint tax return. For 2001, they claim exemptions for their two dependent children on their tax return. Their modified adjusted gross income is $82,000. Their tax is $9,475. Their son, Sean, will receive his bachelor's degree in psychology from the state college in May 2002. Their daughter, Corey, enrolled full-time at that same college in August 2000 to begin working on her bachelor's degree in physical education. In July 2001, Dave and Valerie paid $2,200 in tuition costs for each child for the fall 2001 semester.

Dave and Valerie, their children, and the college meet all of the requirements for the higher education credits. Because Sean is beyond the second (sophomore) year of his postsecondary education, his expenses do not qualify for the Hope credit. But, amounts paid for Sean's expenses in 2001 for academic periods beginning in 2001 qualify for the lifetime learning credit. Corey is in her first two (freshman and sophomore) years of postsecondary education and expenses paid for her in 2001 for academic periods beginning in 2001 qualify for the Hope credit.

Dave and Valerie figure their tentative education credits for 2001, $1,940, as shown in the completed Form 8863. They cannot claim the full amount because their modified adjusted gross income is more than $80,000. They carry the amount from line 18 of Form 8863 to line 46 of Form 1040, and they attach the Form 8863 to their return.

Form 8863 for Dave and Valerie

Tax benefits comparison chart

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