Education Provisions Other Than IRA

Education IRA - See Chapter 8Qualified Tuition Plans – See also Chapter 4

Chapters 5 & 9 – Student Interest Deduction

Interest exp on qualif’d educ loans - tuition, fees, rm & bd

Above the line deducTP, spouse, dependentAmount: 1000 (98), 1500 (99), 2000

(2000), 2500 (2001 + on)Phaseout: [Mod AGI - 40,000 (60,000

MFJ)]/15000

Student Loan Interest (con’d)

Dep of another cannot deduc

98 Law – only pers req’d to pay on loan

Student Loan Interest-EGTTRA ‘01

After `01, AGI Phase outs 50-65 (single), 100-130 (MFJ) indexed

60 month limit – Repealed

Voluntary Interest payments allowed

Chapter 4 – ER Provided Educ. Assistance Exclusion

$5250 undergrad exclusion extended to before 1/1/02

Permanently EGTTRA after ’01

Grad & undergrad after ’01 by EGTRRA

Chapter 11 - Hope Credit

Hope Credit: Tuition & Rel’d; not - rm, bd, bks; - 100% 1st 1000, 50% next 1000 pd after 12/31/97; TP, SP, Dep - 1st 2 yrs post secondary

Chapter 11 - Lifetime Lrng Credit

Lifetime Lrng Credit:20% qualif’d tuit & fees; 5000 exps

pd 6/30/98 - 1/1/03; 10000 exps pd after 12/31/02; TP, SP, Dep

Both credits: phaseout 40-50000 S 80-100000 MFJ

Lifetime Lrng (cont’d)

Prepay (end of yr) - courses beginning 1st 3 mos (next yr) (Reg.)Postpay (after end of yr) - if loan proceeds distributed used directly to elig edu inst b4 yr end (Reg.)

Chapter 11 - Hope & Lifetime

Differences: Lifetime - unlim’d yrs, not vary by # students: Hope does vary by number of students

UG/Grad/Prof: Halftime basis at least, degree or certif; job skills at Elig educ inst (full, half, less half); Both - not include excludable exps

Form 8863

Qualified State Tuition Program - CA Conformity Effective 1/1/98

From Spidell’s Personal Income Tax Update (Fall 1998)

Reasons to Fund a Scholarshare Program

Income is deferred for federal & California purposes until withdrawn for qualified education expense

The college does not have to be designated when the account is open

The student may attend a community college, state university or private institution, inside or outside of California

Income is taxed at student’s tax rate rather than donor’s rate – if not used for qualified expense

Unlike the other tax credits, there is no income limit for donors

Donor retains control of the fundsFunds may be used for education of

the beneficiary or the beneficiary’s relatives

Grandparent can circumvent parent’s control

Contributions to Scholarshare account may be higher than the per beneficiary maximum for an Education IRA

A Scholarshare beneficiary may also be eligible for both the HOPE and the lifetime learning credits

Reasons Not to Fund a Scholarshare

Substantial penalties if withdrawn for nonqualified purposes.

The donor cannot make investment decisions

The money is managed by the StateA donor may not contribute to a

Scholarshare and an education IRA in the same year

Qualified Higher Education Expense Deduction EGTRRA ’01

After ’01 above the line deduction (for AGI) – Tuition & Fees

Qualified higher education expenses2002-2003: 3000 limit and phase out

AGI 65 (single) 130 (mfj)2004-2005: 400 limit and phaseout

65-80 (single) and 130-160 (mfj) can claim 2000