Relief for Parents with College Expenses

The American Recovery and Reinvestment Act of 2009 amended Section 529 to add a new provision, Section 529(e)(3)(A)(iii), which expands the definition of qualified education expenses, and Section 25A(f) of the Hope and Lifetime Learning Credit legislation.

            Section 529 Plans are education savings plan that allows distributions to be tax free if they are used to pay a beneficiary’s qualified educational expenses. Section 529(e)(3)(A) defines qualified higher education expenses as “tuition, fees, books, supplies and equipment required for enrollment or attendance at an eligible institution.” Section 529(e)(3)(B) adds room and board to the list of qualified expenses for students attending at least part-time. The Recovery Act added Section 529(e)(3)(A)(iii) to expand the list of qualified higher education expenses to include purchases made in 2009 or 2010 of computer technology (equipment), as well as Internet access and related services to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible education institution. These expenses include: computers, computer software, computer equipment, and fiber optic cable related to computer use. Equipment and software used for entertainment purposes is not included.

            New Section 25A(f) expands the definition of qualified expenses for purposes of the Hope and Lifetime Learning Credits and the deductions allowed under Section 222. Qualified expenses include tuition and fees at an eligible institution. For example, qualifying fees include course materials such as mandatory equipment fees for a science class. The Recovery Act added new Section 25A(i), which expands the definition of fees to include “books, supplies and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.”  Section 25A(f) also increases the Hope Scholarship credit limit from $1,800 to $2,500. This is equal to 100 percent of the first $2,000 in qualified expenses and 25 percent of the second $2,000, for a possible total of $2,500. Previously, the credit was available for the first two years of college, but now it is available for a student’s first four years of college. This credit is also refundable for the first time up to 40 percent.

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