Education Provisions Other Than IRA

1. Education Provisions Other Than IRA Education IRA - See Chapter 9 Qualified Tuition Plans – See also Chapter 5

2. Chapters 6 & 10 – Student Interest Deduction • Interest exp on qualif’d educ loans - tuition, fees, rm & bd • Above the line deduc • TP, spouse, dependent • Amount: 2500 • Phaseout: [50-65,000 M AGI (105-135,000 MFJ) (05) (inflation adjusted)

3. Student Loan Interest (con’d) • Dep of another cannot deduc • 98 Law – only pers req’d to pay on loan

4. Student Loan Interest-EGTTRA ‘01 • After `01, AGI Phase outs 50-65 (single), 100-130 (MFJ) indexed • 60 month limit – Repealed • Voluntary Interest payments allowed

5. Chapter 5 – ER Provided Educ. Assistance Exclusion • $5250 undergrad exclusion extended to before 1/1/02 • Permanently EGTTRA after ’01 • Grad & undergrad after ’01 by EGTRRA

6. Chapter 12 - 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

7. 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

8. 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.)

9. Chapter 12 - 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

10. Qualified State Tuition Program - CA Conformity Effective 1/1/98 From Spidell’s Personal Income Tax Update (Fall 1998)

11. Reasons to Fund a Scholarshare Program • Income is deferred for federal & California purposes until withdrawn for qualified education expense • The college does not have to be designated when the account is open • The student may attend a community college, state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

12. 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 funds • Funds may be used for education of the beneficiary or the beneficiary’s relatives

13. 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

14. 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 State • A donor may not contribute to a Scholarshare and an education IRA in the same year

15. Qualified Higher Education Expense Deduction EGTRRA ’01 • After ’01 above the line deduction (for AGI) – Tuition & Fees • Qualified higher education expenses • 2004-2005: 4000 up to 65,000 (s), 130,000 (mfj) limit and phaseout 65-80 (single) and 130-160 (mfj) can claim 2000