The Lifetime Learning Credit: Are You Eligible? - SmartAsset

The Lifetime Learning credit is a tax credit for college expenses, though it can also be claimed for tuition paid for graduate courses, vocational schools and continuing education courses. The credit is worth up to 20% of the first $10,000 in qualifying expenses, for a maximum credit of $2,000. To qualify, you must have made tuition and fee payments to the educational institution in question during the tax year. However, if your income is too high during the year, you may not be able to claim the Lifetime Learning credit. We’ll walk through what expenses do and don’t qualify, and how to claim them on your taxes. You can also work with a financial advisor who specializes in tax planning to map out potential tax savings for your individual situation.

Who Can Claim the Lifetime Learning Credit?

Before you even consider whether your expenses qualify for the credit, you should first confirm that you’re eligible for the credit under the current income restrictions. The credit gets gradually phased out at certain income levels, so it’s important to know your current income from your budget and how it plays into your opportunities. The income level is based on your modified adjusted gross income (MAGI).

You can qualify for the full credit if:

You are a single filer, and your MAGI is below $57,000
You are married and filing jointly, and your MAGI is below $114,000

You can qualify for a reduced amount of credit if:

You are a single filer, and your MAGI is between $57,000 and $67,000
You are married and filing jointly, and your MAGI is between $114,000 and $134,000

You cannot qualify for the credit if:

You are a single filer, and your MAGI is above $67,000
You are married and filing jointly, and your MAGI is above $134,000

What Schools and Expenses Qualify?

In order to claim the Lifetime Learning credit, either you, your spouse or any of your dependents must be enrolled at an eligible educational institution.

Eligible educational institutions include all accredited colleges and universities. Other post-secondary institutions and vocational schools are also eligible. If the educational institution in question is able to participate in federal student aid programs through the U.S. Department of Education, it is an eligible educational institution under the Lifetime Learning credit.

You must reduce your qualifying expenses by the amount of financial assistance received from scholarships, grants, or reimbursements. You do not have to reduce your qualifying expenses if you pay tuition using money from family members, student loans, or other borrowed funds.

Only expenses required for enrollment or attendance at the eligible institution are qualified expenses. In other words, only expenses you are contractually obligated to pay are eligible. Expenses required for enrollment include tuition, fees, and any books or supplies you are required to purchase directly from the school. Expenses for course-related books, supplies, and equipment are only eligible for the tax credit if those expenses must be paid as a condition of attendance or enrollment.

Room and board, insurance, medical expenses, transportation, personal living, family expenses, education that involves sports, games, hobbies and any non-credit course that is not part of the student’s degree program do not qualify even if they have to be paid to the institution as a condition of enrollment or attendance.

What Is the Credit Worth?

The full credit is worth 20% of up to $10,000 in eligible costs, which means the maximum credit is $2,000. That maximum still applies even if you’re paying tuition costs on behalf of multiple people. For instance, if you’ve paid tuition expenses for three of your children and they each had tuition expenses of $10,000, you can still only claim $2,000 total – not $2,000 each.

This is a nonrefundable credit, so the credit can’t be more than your tax liability. For instance, if you qualify for the full $2,000 but your tax liability is only $700, you can bring that liability down to zero – but you can’t claim a $1,300 tax refund.

You cannot claim the Lifetime Learning Credit and the American Opportunity credit for the same student in the same year. However, if you are paying for multiple dependents’ tuition, you can claim the American Opportunity credit for one student and the Lifetime Learning credit for another.

American Opportunity Credit

If there is only one student to consider, you should find out if you qualify for the American Opportunity Credit. It can provide greater tax savings than the Lifetime Learning Credit. The maximum credit is $2,500 for the American Opportunity credit, versus only $2,000 for the Lifetime Learning Credit.

In addition, up to 40 percent of the American Opportunity credit is refundable. In other words, if you have already reduced your taxes owed down to zero, and then you add on the American Opportunity credit, you can receive a refund for up to 40 percent of the total credit ($1,000). Expenses for equipment, supplies, and books needed for a class or course of study are eligible whether or not they are purchased from the institution.

Note, however, that the American Opportunity credit is restricted to education expenses during the first four years of a student’s higher education.

Like the Lifetime Learning Credit, the American Opportunity credit gets gradually phased out at certain income levels. However, there is a larger income range for the American Opportunity Credit. The income level is based on your MAGI, or modified adjusted gross income.

You can qualify for the full credit if:

You are a single filer, and your MAGI is below $80,000
You are married and filing jointly, and your MAGI is below $160,000

You can qualify for a reduced amount of credit if:

You are a single filer, and your MAGI is between $80,000 and $90,000
You are married and filing jointly, and your MAGI is between $160,000 and $180,000

You cannot qualify for the credit if:

You are a single filer, and your MAGI is at or above $90,000
You are married and filing jointly, and your MAGI is at or above $180,000

Filing for the Lifetime Learning Credit

Your educational institution should send you a Form 1098-T at the end of the year that reports your eligible costs. If you have an amount in Box 1 or 2 of Form 1098-T and there is no amount listed in Box 5 (which is where the school lists scholarships and grants), then your qualified expenses would be that figure, along with other qualifying expenses like books and supplies.

If you have an amount in Box 1 or 2 and an amount listed in Box 5, you must subtract Box 5 from the amount in Box 1 or 2. After you add any eligible books and supplies to that figure, the total would be your qualifying expenses.

Enter those figures on Form 8863 to claim the credit. You will only need to complete parts 6 and 3 of form 8863 to calculate how much credit you are eligible for. Add the credit amount to your income tax return and make sure to add the 8863 before you send your taxes to the IRS.

The Bottom Line

You can use the lifetime learning credit to pay for college expenses or for continuing your education later in life. The credit can earn you up to 20% of up to $10,000 in expenses, which can be significant with as expensive as college costs have become. There may also be other tax credits that you can access, depending on your situation. You should work with a financial advisor to determine what you personally, or your child, might qualify for.

Tips for Tax Planning

If your tax situation is more complicated, a tax professional like a CPA may be able to help. Better yet, work with a financial advisor who can take a holistic approach to your entire financial situation. Finding the right financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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