QHEEQualified Higher Education Expense
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AQHEE are determined by reducing QHEE by expenses used to claim an education tax credit.
However, the statute does impose an earnings penalty on contributions not used for QHEE.
Unlike prepaid tuition plans, which generally provide for payment only of tuition, funds in a college saving plan can be used to pay all QHEEs. The funds can be used to pay expenses not just at a limited number of schools but at most public and private colleges, whether in-state or out-of-state.
* The Hope Scholarship Credit (HSC) permits a maximum tax credit of $1,650 (100% of the first $1,100 of QHEE and 50% of the second $1,100 incurred) in each of the first two years of postsecondary education, provided the student is enrolled at least half time.
When cash distributions from a QTP exceed QHEE, part of the earnings must be included in gross income.
QHEE covers tuition, fees, books, supplies, and equipment.
If a QSTP withdrawal is not used to pay a QHEE, the earnings portion of the withdrawal is taxed to the "distributee" rather than to the designated beneficiary.
Distributions from state-sponsored QTPs and "private" PEAs that are used to pay QHEEs are excluded from gross income.
Distributions used to pay QHEEs are excluded from gross income.
As defined in section 529(e)(3), QHEEs include tuition, fees, books, supplies and equipment required for enrollment or attendance at an eligible educational institution.
While QHEEs may be funded with distribution proceeds for more than one taxpayer during the tax year, the $10,000 lifetime ceiling for qualified first-time home purchases is so low that it will likely apply to only one taxpayer.
Section 529(b)(6) limits contributions to amounts needed to provide for a designated beneficiary's QHEEs (some state programs provide for lesser dollar amounts).