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Lifetime Learning Tax Credit

Lifetime Learning Tax Credit

During the last ten years, the cost of college has risen by more than 25%. As tuition and fees increase, you may be looking for ways to reduce the cost of education.

Lifetime Learning tax credits are a way to offset school expenses. The LLC is a tax credit designed for students enrolled in eligible educational institutions. It can decrease your tax bill by up to $ 2,000 per tax return, making education more accessible. 

However, not all students are qualified for the tax credit for lifetime learning. Here's a summary of what you need to know about LLC and its eligibility criteria.

What is the Lifetime Learning Credit?

The lifetime learning credit was adopted in the Taxpayer Exemption Act of 1997 as one of the five new tax benefits for education.

The LLC is a tax credit. Tax credits reduce the cost of tax owed, dollar for dollar, upon filing the tax return. They differ from tax reductions, which reduce your taxable income. 

With the LLC, you can claim 20% up to $ 10,000 in eligible costs, with a maximum of $ 2,000 per return. The LLC is non-refundable, so you can use the credit to pay your tax bill, but you will not receive any money as a refund if your tax bill is $0.

Unlike other tax credits for education, there is no limit to the number of years you can apply for the LLC. You can continue to apply for credits if you decide to take additional courses as long as you meet the other eligibility criteria.

Qualified Educational Institutions

All accredited universities, colleges, business schools, and other post-secondary institutions qualify as eligible educational institutions. Tuition fees paid to the school may be used to apply for a continuing education loan if the educational institution is eligible to participate in the federal student aid programs.

Expenses that Qualify

LLC is only available for eligible education expenses. There is no limit to the number of years you can claim these expenses, but there are only two main expenses that qualify for LLC:

  • Fees to be paid for enrolling in a program or course

  • Tuition

As a general rule, you cannot claim an expense for LLC unless you need to pay it to participate in a program. For example, some professional development courses include the textbook price in the class's cost, and these costs cannot be separated. Some universities also charge certain fees for student activities. An expense is also eligible only if paid directly to the school or company administering the course.

Who qualifies for the lifetime learning credit?

Eligible students in educational institutions can apply for a credit for LLC in their tax returns. To be eligible for credit, taxpayers must:

  • Be enrolled in one academic period starting with the fiscal year you applied for the loan.

  • Be enrolled or take courses at least in part at a qualified educational institution.

  • Take courses to obtain a diploma, professional accreditations, or to improve professional skills.

For LLC, eligible educational institutions offer post-secondary education to high school graduates. Qualified institutions include universities, colleges, and business schools that participate in a student aid program administered by the United States Department of Education. To see if your school is qualified, make sure your school is in the database of accredited post-secondary institutions or is listed in the Federal Student Loan Program, which features qualified international schools.

Only certain educational expenses, such as tuition and other fees, qualify for the lifetime learning credit. Other college costs, such as medical bills, transportation, and room and board, are not eligible.

American Opportunity Tax Credit vs. the LLC

The American Opportunity Tax Credit is limited to the first four years of college. The Lifetime Learning Credit is available for all post-secondary education levels: vocational schools, undergraduate, postgraduate, and advanced courses.

You cannot claim lifetime learning credit and US opportunity credit for the same student in the same year. However, you can apply for an LLC for one student and an American opportunity credit for another.

American opportunity credit can often be higher, so taxpayers typically only apply for lifetime learning credit when they cannot claim the American opportunity tax credit due to registration restrictions. 

Up to 40% of the American Opportunity credit is repayable up to $ 1,000. If you have any remaining credit after taxes have been reduced to zero, you will receive a refund of up to 40% of your total credit. The lifetime learning credit is non-refundable. You can clear any taxes owed, but the IRS will keep the rest.

American Opportunity Credit is primarily for four-year degree programs. Also, the student should not have drug-related criminal convictions. Additionally, a conviction for an offense does not prevent a student from qualifying for the LLC.

What is the income limit for the Lifetime Learning Credit?

There are income restrictions for the Lifetime Learning Credit. You can receive full credit if the modified adjusted gross income (MAGI) is less than $ 68,000 ($ 136,000 if you are married filing jointly). The credit is eliminated if your income is between $ 58,000 and $ 68,000 ($116,000 and $136,000 if you are filing a joint tax return), so you may not be eligible for the full credit. If your income exceeds $ 68,000 (or $ 136,000 with a joint tax return), you will not be eligible for the LLC.

How to apply for lifetime learning credits

To apply for a lifetime learning credit, follow these steps:

  • Obtain Form 1098-T: If you have paid tuition and fees for your school, the school is required by law to send you Form 1098-T, a tuition statement. You will usually receive it no later than January 31 of the year following that fiscal year, and the form will show how much you paid in monthly fees and commissions.

  • Complete form 1040 or 1040-SR: You must complete these forms annually to file your income tax return by the April annual due date.

  • Complete form 8863: Complete form 8863-Education credits and attach it to your tax return. 



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