Message Font: Serif | Sans-Serif
No. of Recommendations: 0
[[I'm in the process of taking out a $5,000 loan to improve my ability to preform the essential duties
for a recent promotion. Since I already have the promotion, it would appear that I am "enhancing
and updating" current skills and not getting the education "to enter a new job area" and so would be
eligible for all the deductions and credits you mentioned, yes?]]

As long as you are maintaining current skills, you should be in good shape. That should make your education expenses deductible by you as a miscellaneous itemized deduction, subject to the 2% AGI limitation. If you want to go deeper into the rules and regulations regarding the deduction of education expenses, check out IRS Publication 508.

[[ I will be spending about $1,500 for the 10/98 - 12/98 quarter and will be receiving reimburserment
from my employer of about $500 of that amount. If I understand things correctly, I would be
eligible for to take either of the two credit in the amount of the $1,000 that I will actually be out of
pocket -OR- claim the $1,000 as an itemized deduction.]]

That is basically correct. Which credit you'll elect depends upon the type of education that you are receiving. And you might elect the credit over the deduction if it so happens that you don't itemize your deductions. And, with respect to the Hope and Lifetime Learning credits, there may be education expenses that you pay that might not qualify for the credit, but that will qualify for the deduction. Or you may be over the income limitations to take the credits, so you may be stuck with itemizing the education expenses. So it can get a bit complicated.

[[ With respect to the 1/99 - 3/99 quarter, I will have similar expenses (from the same loan) and
expect a similar reimbursement. If I pay this in 1998, could I claim the other credit for this amount,
or would I have to file the long form and itemize deductions to claim this second $1,000 of
"qualified educational expenses"?]]

Each year stands alone. In fact, as the name implies, the "lifetime" learning credit allows for an annual $1,000 credit for life, if you decide to stay in school that long. So one year doesn't necessarily impact the other. Am I understanding your question?

[[ Then for the two quarters comprising 4/99-9/99, (aproximately $3,000 of which $500 is likely to
be reimbursed) can I claim both credits to cover the $2,500 total I'll be out of pocket for those
quarters, or can I only claim one credit and apply the remainder as an itemized deduction?]]

I think that you may want to go back and read the credit post again. If you do, you'll see that you are not allowed to take both credits in the same year. You are stuck with one or the other. Obviously the Hope credit would be the one that you would like to take, but it has many more restrictions. So you may be stuck with the Lifetime Learning Credit, with an itemized deduction for the balance of the expenses.

[[ Then in 2000 when I start having to make payments on the student loan (begining around 4/00) that
interest can be deducted "above the line" allowing me to use the standard deduction and still reduce
my AGI and thereby my taxes.]]

Assuming that you otherwise qualify, yes. Remember that there ARE income limitations. But, if you qualify, your interest deduction would reduce your AGI.

[[ Do I have it right?]]

Pretty much...

[[ One other question, the student loan interest deduction reduces my AGI so would that affect my
ability to qualify for Roth IRA conversions, etc. that are phazed out based on AGI levels?]]

Yes it would.

Hope this begins to clear some things up. Also, remember that the education institution will have a bunch of information on the Hope credit, the Lifetime credit, and the student loan interest deduction. So check with the educational institution that you are planning on attending. They'll have plenty of information to hand you.

TMF Taxes
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.