Title II — Tax provisions

“25A. American Opportunity Tax Credit

“(a) In general—In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year, with respect to each eligible student, an amount equal to the sum of—

“(1) 100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to the eligible student during any academic period beginning in such taxable year) as does not exceed $2,000, plus

“(2) 25 percent of so much of such expenses so paid as exceeds the dollar amount in effect under paragraph (1) but does not exceed twice such dollar amount.

“(b) Portion of credit refundable—60 percent of the credit allowable under subsection (a) with respect to each eligible student (determined without regard to this subsection and section 26(a) and after application of all other provisions of this section) shall be treated as a credit allowable under subpart C (and not under this part). The preceding sentence shall not apply to any taxpayer for any taxable year if such taxpayer is a child to whom section 1(g) applies for such taxable year.

“(c) 5-Year limitation—No credit shall be allowed under subsection (a) with respect to any eligible student for any taxable year if such student was taken into account in determining the credit allowed under such subsection (by the taxpayer or any other individual) for any 5 prior taxable years.

“(d) Lifetime Learning credit

“(1) In general—In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to 20 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished during any academic period beginning in such taxable year) as does not exceed $10,000.

“(2) Special rules for determining expenses

“(A) Coordination with American Opportunity Tax Credit—The qualified tuition and related expenses with respect to an individual who is an eligible student for whom a credit under subsection (a) is allowed for the taxable year shall not be taken into account under this subsection.

“(B) Expenses eligible for Lifetime Learning credit—For purposes of paragraph (1), qualified tuition and related expenses shall include expenses described in subsection (f)(2) with respect to any course of instruction at an eligible educational institution to acquire or improve job skills of the individual.

“(e) Limitation based on modified adjusted gross income

“(1) In general—The amount allowable as a credit under subsection (a) or (d) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this subsection and subsection (b) but after application of all other provisions of this section) as—

“(A) the excess of—

“(i) the taxpayer’s modified adjusted gross income for such taxable year, over

“(ii) $80,000 in the case of the credit under subsection (a), or $40,000 in the case of the credit under subsection (d), bears to

“(B) $10,000.

“(2) Joint returns—In the case of a joint return, each of the dollar amounts in effect under paragraph (1) shall be increased to twice such amount.

“(3) Modified adjusted gross income—For purposes of this subsection, 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.

“(4) Inflation adjustment for Lifetime Learning credit phaseout

“(A) In general—In the case of a taxable year beginning after 2001, the $40,000 amount in paragraph (1)(A)(ii) shall be increased by an amount equal to—

“(i) such dollar amount, multiplied by

“(ii) 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 2000” for “calendar year 1992” in subparagraph (B) thereof.

“(B) 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.

“(f) Definitions—For purposes of this section—

“(1) 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 August 5, 1997, and

“(B) is carrying at least 1/2 the normal full-time work load for the course of study the student is pursuing.

“(2) Qualified tuition and related expenses

“(A) In general—The term qualified tuition and related expenses means tuition, fees, and course materials, required for enrollment or attendance of—

“(i) the taxpayer,

“(ii) the taxpayer’s spouse, or

“(iii) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151,

“(B) Computer-related expenses included—Except as provided in subsection (g)(9), such term includes expenses for the purchase of computer or peripheral equipment (as defined in section 168(i)(2)(B)), computer software (as defined in section 197(e)(3)(B)), or Internet access and related services, if such equipment, software, or services are to be used primarily by the eligible student during any of the years the student is enrolled at an eligible educational institution.

“(C) Special needs services included—Such term includes expenses for special needs services in the case of a special needs beneficiary (within the meaning of section 529(e)(3)(A)(ii) as in effect on the day before the date of the enactment of the Promoting Access and Retention Through New Efforts to Require Shared Higher Investments in Postsecondary Success Act) which are incurred in connection with the enrollment or attendance of the student at an eligible educational institution.

“(D) Exception for education involving sports, etc—Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual’s degree program.

“(E) Exception for nonacademic fees—Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction.

“(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 (20 U.S.C. 1088), as in effect on August 5, 1997, and

“(B) which is eligible to participate in a program under title IV of such Act.

“(g) Special rules

“(1) Identification requirement—No credit shall be allowed under this section to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual, and the employer identification number of any institution to which such expenses were paid, on the return of tax for the taxable year.

“(2) Adjustment for certain scholarships, etc

“(A) In general—The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) or (d) with respect to an individual for an academic period shall be reduced (before the application of subsection (e)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as—

“(i) a qualified scholarship which is excludable from gross income under section 117,

“(ii) 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

“(iii) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual'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.

“(B) Coordination with Pell Grants not used for qualified tuition and related expenses—For purposes of subparagraph (A), the amount of any Federal Pell Grant under section 401 of the Higher Education Act of 1965 (20 U.S.C. 1070a) shall be reduced (but not below zero) by the amount of expenses (other than qualified tuition and related expenses) which are 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 the Promoting Access and Retention Through New Efforts to Require Shared Higher Investments in Postsecondary Success Act) of such individual at an eligible educational institution for the academic period for which the credit under subsection (a) or (d) (whichever is applicable) is being determined.

“(3) 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 this section to such individual for such individual’s taxable year,

“(B) qualified tuition and related 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, and

“(C) a statement described in paragraph (8) and received by such individual shall be treated as received by the taxpayer.

“(4) Treatment of certain prepayments—If qualified tuition and related expenses are 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.

“(5) Denial of double benefit—No credit shall be allowed under this section for any amount for which a deduction is allowed under any other provision of this chapter.

“(6) 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.

“(7) 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.

“(8) Payee statement requirement—Except as otherwise provided by the Secretary, no credit shall be allowed under this section unless the taxpayer receives a statement furnished under section 6050S(d) which contains all of the information required by paragraph (2) thereof.

“(9) Reduced credit in case of certain students—In the case of a student who is not an eligible student for the taxable year solely by reason of subparagraph (B) of subsection (f)(1), the student shall be treated as an eligible student for purposes of this section (other than subsection (f)(2)(B)) for such taxable year except that the dollar amount in effect under subsection (a)(1) shall be 1/2 of the amount otherwise in effect for such taxable year.

“(h) Regulations—The Secretary may prescribe such regulations or other guidance 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 amount which was taken into account in determining the amount of such credit.”

“(A) an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals), and

“(B) any spouse or dependent of an employee.”

“(2) Certain public interest student loans

“(A) In general—A discharge meets the requirements of this paragraph if it is made pursuant to a provision of a student loan described in subparagraph (B) under which all or part of the indebtedness of an individual would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers.

“(B) Limitation—A student loan is described in this subparagraph if such loan is made—

“(i) by the United States, or an instrumentality or agency thereof,

“(ii) by a State, territory, or possession of the United States, or the District of Columbia, or any political subdivision thereof,

“(iii) by a public benefit corporation—

“(I) which is exempt from taxation under section 501(c)(3),

“(II) which has assumed control over a State, county, or municipal hospital, and

“(III) whose employees have been deemed to be public employees under State law,

“(iv) by any educational organization described in section 170(b)(1)(A)(ii)—

“(I) pursuant to an agreement with any entity described in clause (i), (ii), or (iii) under which the funds from which the loan was made were provided to such educational organization, or

“(II) pursuant to a program of such educational organization which is designed to encourage its students to serve in occupations with unmet needs or in areas with unmet needs and under which the services provided by the students (or former students) are for or under the direction of a governmental unit or an organization described in section 501(c)(3) and exempt from tax under section 501(a), or

“(v) by an educational organization described in section 170(b)(1)(A)(ii) or an organization exempt from tax under section 501(a)—

“(I) to refinance a loan that meets the requirements of clause (i), (ii), (iii), or (iv), or

“(II) to refinance a loan to an individual to assist the individual in attending any such educational organization, but only if the refinancing loan is pursuant to a program of the refinancing organization which is designed as described in clause (iv)(II).

“(C) Exception for discharges on account of services performed for certain lenders—A discharge of a loan made by an organization described in subparagraph (B)(iv) does not meet the requirements of this paragraph if the discharge is on account of services performed for either such organization.”

“(3) Institution-provided loan repayments—A repayment meets the requirements of this paragraph if—

“(A) it is made by an organization described in section 501(c)(3) that is exempt from tax under section 501(a),

“(B) it is made pursuant to a program that repays all or a portion of the student loans of individuals on the condition that at the time of the repayment the individuals are working for or under the direction of a governmental unit or an organization described in section 501(c)(3) and exempt from tax under section 501(a), and

“(C) it is not made on account of services performed for the organization described in subparagraph (A).”

“(A) as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses, or

“(B) as a Federal Pell Grant under section 401 of the Higher Education Act of 1965 (as in effect on the date of the enactment of this subparagraph).”