Consolidation of education tax incentives into higher education tax credit

(a)

In General

Section 25A of the Internal Revenue Code of 1986 (relating to Hope and Lifetime Learning credits) is amended to read as follows:

25A.

Higher education tax credit

(a)

Allowance of credit

In the case of any eligible student for whom an election is in effect under this section for any taxable year, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of— (1)50 percent of so much of the higher education expenses paid by the taxpayer during the taxable year (with respect to attendance of the eligible student at an eligible educational institution during any academic period beginning in such taxable year) as does not exceed $3,000, and (2)30 percent of so much of such expenses as exceeds $3,000, but does not exceed $8,000. (b)

Limitations

(1)

Higher education expense limitation

The amount of higher education expenses taken into account under subsection (a) with respect to an individual for an academic period shall not exceed the individual’s cost of attendance (as defined in section 472 of the Higher Education Act of 1965, as in effect on the date of the enactment of this section) for such period at the eligible educational institution with respect to which such higher education expenses were paid. (2)

Lifetime credit limitation

The amount of the credit allowed under subsection (a) for any taxable year with respect to any eligible student shall not exceed the excess of— (A)$12,000, over (B)the aggregate credit allowed under subsection (a) with respect to such eligible student for all prior taxable years. (3)

Credit limitation based on modified adjusted gross income

(A)

In general

The amount which would (but for this paragraph) be taken into account under subsection (a) for the taxable year shall be reduced (but not below zero) by the amount determined under subparagraph (B). (B)

Amount of reduction

The amount determined under this subparagraph is the amount which bears the same ratio to the amount which would be so taken into account as— (i)the excess of— (I)the taxpayer’s modified adjusted gross income for such taxable year, over (II)the applicable amount under subparagraph (D), bears to (ii)$30,000 ($60,000 in the case of a joint return). (C)

Modified adjusted gross income

The term modified adjusted gross income means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933. (D)

Applicable amount

The applicable amount under this subparagraph is— (i)in the case of a joint return, 200 percent of the dollar amount in effect under clause (ii) for the taxable year, and (ii)in any other case, $50,000. (4)

Limitation based on amount of tax

In the case of a taxable year to which section 26(a)(2) does not apply, the credit allowed under subsection (a) for the taxable year shall not exceed the excess of— (A)the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over (B)the sum of the credits allowable under this subpart (other than this section and section 23) and section 27 for the taxable year. (c)

Definitions

For purposes of this subsection— (1)

Eligible student

The term eligible student means, with respect to any academic period, any individual who meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the date of the enactment of the Taxpayer Relief Act of 1997. (2)

Higher education expense

The term higher education expense means any expense of a type which is taken into account in determining the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, as in effect on the date of the enactment of this section) of— (A)the taxpayer, (B)the taxpayer’s spouse, or (C)any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151,

at an eligible educational institution with respect to the attendance of such individual at such institution for the academic period for which the credit under this section is being determined.

(3)

Eligible educational institution

The term eligible educational institution means an institution— (A)which is described in section 481 of the Higher Education Act of 1965, as in effect on the date of the enactment of the Taxpayer Relief Act of 1997, and (B)which is eligible to participate in a program under title IV of the Higher Education Act of 1965. (d)

Special rules

(1)

Identification requirement

No credit shall be allowed under subsection (a) to a taxpayer with respect to an eligible student unless the taxpayer includes the name and taxpayer identification number of such student on the return of tax for the taxable year. (2)

Adjustment for certain scholarships

The amount of higher education expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsections (a) and (b)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as— (A)a qualified scholarship which is excludable from gross income under section 117, (B)an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code, and (C)a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such student’s educational expenses, or attributable to such individual’s enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States. (3)

Credit allowed only for first 2 years of graduate education

No credit shall be allowed under subsection (a) for a taxable year with respect to the higher education expenses of an eligible student if the student has completed (before the beginning of such taxable year) 2 years of graduate education at one or more eligible educational institutions. (4)

Treatment of expenses paid by dependent

If a deduction under section 151 with respect to an individual is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins— (A)no credit shall be allowed under subsection (a) to such individual for such individual’s taxable year, and (B)higher education expenses paid by such individual during such individual’s taxable year shall be treated for purposes of this section as paid by such other taxpayer. (5)

Treatment of certain prepayments

If higher education expense is paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year. (6)

Denial of double benefit

No credit shall be allowed under this section for any expense for which deduction is allowed under any other provision of this chapter. (7)

No credit for married individuals filing separate returns

If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year. (8)

Nonresident aliens

If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. (e)

Portion of credit refundable

The aggregate credits allowed to a taxpayer under subpart C shall be increased by 50 percent of the portion of the amount of the credit which would have been allowed to the taxpayer under this section without regard to this subsection and the limitation under section 26(a)(2) or subsection (b)(4), as the case may be. The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of credit otherwise allowable under subsection (a) without regard to section 26(a)(2) or subsection (b)(3), as the case may be. (f)

Election not To have section apply

A taxpayer may elect not to have this section apply with respect to the higher education expenses of an individual for any taxable year. (g)

Inflation adjustment

(1)

In general

In the case of a taxable year beginning after 2008, the $50,000 amount in subsection (b)(3)(D) shall each be increased by an amount equal to— (A)such dollar amount, multiplied by (B)the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2007 for calendar year 1992 in subparagraph (B) thereof. (2)

Rounding

If any amount as adjusted under subparagraph (A) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000. (h)

Regulations

The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations providing for a recapture of the credit allowed under this section in cases where there is a refund in a subsequent taxable year of any expense which was taken into account in determining the amount of such credit.

(b)

Repeal of deduction for qualified tuition and related expenses

(1)

In general

Part VII of subchapter B of chapter 1 of such Code (relating to additional itemized deductions for individuals) is amended by striking section 222. (2)

Clerical amendment

The table of sections for part VII of subchapter B of chapter 1 of such Code is amended by striking the item relating to section 222. (c)

Conforming amendments

(1)Subsection (c) of section 23 of such Code is amended by striking and 1400C and inserting 25A, and 1400C. (2)Subparagraph (B) of section 24(b)(3) of such Code is amended by striking and 25B and inserting , 25A, and 25B. (3)Subparagraph (C) of section 25(e)(1) of such Code is amended— (A)by striking 25D in clause (i) and inserting 25A, 25D, and (B)by striking 24 in clause (ii) and inserting 24, 25A. (4)Paragraph (2) of section 25B(g) of such Code is amended by striking section 23 and inserting sections 23 and 25A. (5)Subsection (c) of section 25D of such Code is amended— (A)in paragraph (1) by inserting and section 25A after other than this section, and (B)in paragraph (2) by striking 24 and inserting 24, 25A. (6)Subsection (d) of section 1400C of such Code is amended— (A)by striking section 25D in paragraph (1) and inserting sections 25A and 25D, and (B)by striking 24 in paragraph (2) and inserting 24, 25A. (7)Section 62(a) of such Code is amended by striking paragraph (18). (8)Subparagraph (A) of section 86(b)(2) of such Code is amended by striking , 222. (9)Subparagraph (B) of section 72(t)(7) of such Code is amended by striking section 25A(g)(2) and inserting section 25A(d)(2). (10)Subparagraph (A) of section 135(c)(4) of such Code is amended by striking , 222. (11)Subparagraph (A) of section 137(b)(3) of such Code is amended by striking , 222. (12)Subparagraph (A) of section 199(d)(2) of such Code is amended by striking , 222. (13)Clause (ii) of section 219(g)(3)(A) of such Code is amended by striking , 222. (14)Clause (i) of section 221(b)(2)(C) of such Code is amended by striking , 222. (15)Clause (iii) of section 469(i)(3)(F) of such Code is amended by striking 221, and 222 and inserting and 221. (16)Subsection (d) of section 221 of such Code is amended— (A)by striking section 25A(g)(2) in paragraph (2)(B) and inserting section 25A(d)(2), and (B)by striking section 25A(f)(2) in the second sentence of paragraph (2) and inserting section 25A(c)(3). (17)Paragraph (3) of section 221(d) of such Code is amended to read as follows:

(3)

Eligible student

The term eligible student means, with respect to any academic period, a student who— (A)meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the date of the enactment of the Taxpayer Relief Act of 1997, and (B)is carrying at least 1⁄2 the normal full-time workload for the course of study the student is pursuing.

(18)Subclause (I) of section 529(c)(3)(B)(v) of such Code is amended by striking section 25A(g)(2) and inserting 25A(d)(2). (19)Clause (i) of section 529(e)(3)(B) of such Code is amended by striking section 25A(b)(3) and inserting section 221(d)(3). (20)Subclause (I) of section 530(d)(2)(C)(i) of such Code is amended by striking section 25A(g)(2) and inserting section 25A(d)(2). (21)Clause (iii) of section 530(d)(4)(B) of such Code is amended by striking section 25A(g)(2) and inserting 25A(d)(2). (22)Section 1400O of such Code is amended by adding at the end the following flush sentence:

For purposes of this section, any reference to section 25A shall be treated as a reference to such section as in effect on the day before the date of the enactment of this sentence.

(23)Section 6050S of such Code is amended— (A)by striking qualified tuition and related expenses in subsection (a)(2) and inserting expenses which are included as part of a student’s cost of attendance (as defined in section 472 of the Higher Education Act of 1965), (B)by striking clause (i) of subsection (b)(2)(B) and inserting the following new clause:

(i)the cost of attendance (as defined in section 472 of the Higher Education Act of 1965) of such individual,

, and

(C)in subsection (e) by striking the terms and all that follows through subsection (g)(2) thereof) and inserting the term eligible educational institution has the meaning given such term by section 25A(c)(3). (24)Subparagraph (J) of section 6213(g)(2) of such Code is amended by striking section 25A(g)(1) (relating to higher education tuition and related expenses) and inserting section 25A(d)(1) (relating to higher education tax credit). (25)Paragraph (2) of section 1324(b) of title 31, United States Code, is amended by inserting , 25A, after section 35. (26)The table of sections for subpart A of part IV of subchapter A of chapter 1 of such Code is amended by striking the item relating to section 25A and inserting the following:

Sec. 25A. Higher education tax credit.

(d)

Effective date

The amendments made by this section shall apply to expenses paid after December 31, 2007, for education furnished in academic periods beginning after such date.