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Economic stimulus bill adds computer expenses as 529-eligible

(February 17, 2009) - Under the American Recovery and Reinvestment Tax Act of 2009, being signed today by President Barack Obama, the list of Section 529 qualified higher education expenses is expanded to include expenses paid or incurred in 2009 or 2010 for the purchase of any computer technology, equipment, or 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 educational institution.

Not eligible are the expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.

The Act also provides for the American Opportunity Tax Credit, essentially a supercharged Hope Scholarship credit for years 2009 and 2010 only. The maximum credit is boosted to $2,500, consisting of 100% of the first $2,000 of eligible expenses plus 25% of the next $2,000 of eligible expenses. The credit is allowed for the first 4 years of post-secondary education, instead of just 2 years. Eligible expenses are expanded to include course materials. The credit may be claimed against alternative minimum tax, and up to 40% of the credit is refundable for taxpayers not eligible to be claimed as someone else's dependent. Finally, the income phase-out is increased to $80,000 - $90,000 ($160,000 - $180,000 for joint filers).

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