Table of Contents

Course Learning Objectives v

Introduction. v

Chapter 1 - '529 Qualified Tuition Programs. 1

Chapter Learning Objectives 1

Introduction. 1

High Income-Education Correlation. 1

Qualified Tuition Programs 2

Prepaid Tuition Plans 2

College Savings Plans 3

Limits on Contributions 3

Tax Treatment of Qualified Tuition Programs 3

Qualified Tuition Program Contributions Not Deductible and are Considered Gifts 4

College Savings Program Earnings Tax-Deferred. 4

College Savings Plan Distributions may be Tax-Free 5

Qualified Education Expenses 6

Half-Time Student 6

Adjustments to Qualified Education Expenses 6

Eligible Educational Institution. 6

Certain College Savings Plan Distributions Taxable 7

Coordination with American Opportunity and Lifetime Learning Credits 8

Coordination with Coverdell Education Savings Account Distributions 9

Additional Tax Payable on Taxable QTP Distributions 10

Exceptions to Additional Tax Liability. 10

QTP Investment Losses 10

Rollovers and QTP Beneficiary Changes 10

Summary. 11

Chapter 1 Review Questions 13

Chapter 2 Coverdell Education Savings Accounts. 14

Chapter Learning Objectives 14

Introduction. 14

Definition & Eligibility. 14

Limits on Contributions 14

Eligible ESA Beneficiaries 15

Tax Considerations 15

Tax-Free ESA Distributions 16

Qualified Education Expenses 16

Eligible Educational Institution. 16

Taxation of Excess ESA Distributions 17

Calculating Earnings Distributed. 18

Adjusted Qualified Education Expenses 18

Coordination with American Opportunity and Lifetime Learning Credits 18

Coordination with Qualified Tuition Program Distributions 19

Additional Tax Payable on Taxable ESA Distributions 19

Exceptions to Additional Tax Liability. 19

Coverdell ESA Investment Losses 20

Calculating the Taxable Part of the Distribution. 20

ESA Rollovers 20

Summary. 21

Chapter 2 Review Questions 22

Chapter 3 Education Savings Bond Program.. 24

Chapter Learning Objectives 24

Introduction. 24

Education Savings Bond Program in Brief 24

Qualified U.S. Savings Bonds 24

Qualified Education Expenses 24

Eligible Educational Institutions 25

Qualified Education Expenses Reduced by Certain Tax-free Benefits Received. 25

Figuring the Potentially Tax-Free Amount 25

Education Savings Bond Program Eligibility Subject to Income Limits/Filing Status 26

Summary. 27

Chapter 3 Review Questions 28

Chapter 4 Education Tax Credits. 29

Chapter Learning Objectives 29

Introduction. 29

Two Tax Credits Offset Higher Education Costs 29

American Opportunity Credit 29

Overview of the American Opportunity Credit 29

Eligibility to Claim an American Opportunity Credit 30

Expenses Qualifying for an American Opportunity Credit 30

Qualified Education Expenses - American Opportunity Credit 30

Eligible Educational Institution. 31

Double Benefit Prohibited. 31

Adjustments to Qualified Education Expenses 31

Tax-Free Educational Assistance 31

Refunds 32

Expenses That Do Not Qualify. 32

Eligible Students American Opportunity Credit 32

Claiming a Dependents Expenses 33

Expenses Paid By The Dependent 33

Expenses Paid By Others 33

Tuition Reductions 33

Tuition Reductions For Undergraduate Level Education. 34

Tuition Reductions For Graduate Level Education. 34

Figuring the American Opportunity Credit 34

Maximum American Opportunity Credit Subject to Income Limits/Filing Status 34

Refundable Part of the American Opportunity Credit 36

Credit Recapture 36

Lifetime Learning Credit 36

Overview of the Lifetime Learning Credit 37

Eligibility to Claim a Lifetime Learning Credit 37

Expenses Qualifying for a Lifetime Learning Credit 38

Qualified Education Expenses Lifetime Learning Credit 38

Eligible Educational Institution. 38

Double Benefit Prohibited. 38

Adjustments to Qualified Education Expenses 39

Tax-Free Educational Assistance 39

Refunds 39

Expenses That Do Not Qualify. 39

Eligible Students Lifetime Learning Credit 40

Claiming a Dependents Expenses 40

Expenses Paid By The Dependent 40

Expenses Paid By Others 40

Tuition Reductions 40

Tuition Reductions For Undergraduate Level Education. 41

Tuition Reductions For Graduate Level Education. 41

Figuring the Lifetime Learning Credit 41

Maximum Lifetime Learning Credit Subject to Income Limits/Filing Status 42

Lifetime Learning Credit Recapture 43

Summary. 43

Chapter 4 Review Questions 45

Chapter 5 Tax Treatment of Educational Assistance and Student Loan Interest 46

Chapter Learning Objectives 46

Introduction. 46

Educational Assistance 46

Scholarships and Fellowships 46

Tax-Free Scholarships and Fellowships for Degree Candidates 46

Eligible Educational Institution. 47

Qualified Education Expenses 47

Taxable Scholarships and Fellowships 47

Amounts Used to Pay Non-qualifying Expenses 48

Payments for Services Constitute Taxable Income 48

Scholarship Prizes 48

Reporting Scholarships and Fellowships 48

Other Types of Educational Assistance 48

Fulbright Grants 48

Pell Grants and Other Need-Based Education Grants 49

Service Academy Cadet Payments 49

Veterans Benefits 49

Tuition Reduction. 49

Tuition Reductions for Undergraduate Level Education. 49

Tuition Reductions for Graduate Level Education. 50

Reporting Tuition Reductions 50

Tuition and Fees Deduction. 50

Student Loan Interest Deduction. 50

Student Loan Interest Defined. 50

Qualified Student Loan. 51

Dependents for Student Loan Interest Deductions 51

Exceptions to Usual Dependent Rules 51

Reasonable Period of Time 52

Eligible Student 52

Qualified Education Expenses 52

Eligible Educational Institution. 52

Adjustments to Qualified Education Expenses 53

Amounts Included as Interest 53

Amounts Not Included as Interest 53

Eligibility to Claim the Deduction. 53

Determining the Student Loan Interest Deduction. 54

Income and Filing Status may Affect Student Loan Interest Deduction. 54

MAGI Defined for Student Loan Interest Deduction. 55

Student Loan Cancellations and Repayment Assistance 55

Tax-Free Student Loan Cancellation. 55

Qualified Lenders 55

Eligible Educational Institutions 56

Refinanced Loans 56

Tax-Free Student Loan Repayment Assistance 56

IRA Distributions 57

Eligible Individuals 57

Qualified Education Expenses 57

Eligible Educational Institution. 58

Figuring the Amount Not Subject to the Penalty Tax. 58

Summary. 58

Chapter 5 Review Questions 60

Answers to Review Quizzes. 61

Chapter 1 Review Questions Feedback. 61

Chapter 2 Review Questions Feedback. 64

Chapter 3 Review Questions Feedback. 69

Chapter 4 Review Questions Feedback. 72

Chapter 5 Review Questions Feedback. 76

Final Examination. 93

CPASelfstudy.com Course Evaluation. 101