Hi Atlanta Tax Expert,
Thanks, again.
I will claim my wife's deduction as per your suggestion and will keep her fee receipts, just in case the IRS decides to inquire about. One more question -
My wife is an MBA student working towards her credits. We paid around $10000 in 2007. What would be the best for me to do? On 1010-A, claim "tuition and fees deduction (line 19)" whereby I can deduct the fees directly from my income; or claim "Education credits (line 31)?" You said "even hope credits.." and I don't know what's the best for me to do - to minimize my tax burden? Line 19, 31, hope credits? Please suggest and thanks as always.

Yes, this is for AtlantaTaxExpert.

You CANNOT claim the Hope Tax Credit, as your wife is a graduate student.

You CAN claim either the Lifetime Learning Credit or the tuition deduction as an adjustment to income.

Which is best depends on your income level.

The only way to know for sure is to model the returnBOTH ways and compare.

I suspect the LIFETIME LEARNING CREDIT will be the better alternative, but I will not guarantee that.