What is a Lifetime Learning Tax Credit and How to Qualify?

What is a Lifetime Learning Tax Credit and How to Qualify?

The Lifetime Learning Tax Credit corresponds to 20 percent of the first $10,000 in your tuition expenses paid every year. The maximum credit for Lifetime Learning Tax Credit is up to $2,000.00. To claim the full $2,000.00 credit, you need to have no less than $10,000.00 in qualified expenses in a given year.

For instance, if you have spent $5,000.00, your credit will be decreased to $1,000.00, or 20 percent of that amount.

You can ask for the Lifetime Learning Credit if you are accountable for paying the costs for college and that you or any of your dependents including your spouse are registered at a qualified educational institution. The collective cap is $10,000.00. Credit cannot be claimed for each student.

For the first four years of baccalaureate enrollment, the learners are not required to be a full-time student and the Lifetime Learning Credit is not restricted. You may take only one class and might still be eligible.

How to Identify an Educational Institution that is Eligible

Every college and university is accredited to qualify as eligible educational institutions. There are post-secondary institutions and vocational schools are also eligible. The tuition paid to the school can be used in claiming the Lifetime Learning Credit given that the learning institution is qualified to join through the U.S. Department of Education the federal student aid programs.

Recognizing Qualified Expenses

Qualifying expenses consist of the paid amounts for tuition and any mandatory fees such as the student body fees and registration. It does not include school supplies, equipment, books, insurance, transportation, board and lodging, student health fees, or living expenses.

The bills arrive at you and so you must be on the hook contractually for paying these costs and fees. Your qualifying expenses must be reduced by the amount of any financial assistance obtained from scholarships, reimbursements or grants, but reducing them is not necessary if you pay using your borrowed funds your college tuition. Gifts from a family member or a student loan are understood to be financial assistance.

Who are Qualified to Claim the Education Credits?

If your son or daughter is going to college and he/she is your dependent and that you are paying for their school expenses, you can claim on your tax return the education credit. Unless you claim your child as your dependent, if he/she is paying for his/her school expenses then the education credits can be claimed on her tax return.

The Lifetime Learning Credit cannot be claimed if you are paying for education expenses for someone who is not your dependent. You cannot also claim the credit if you are married but the tax return is filed separately. If you are a resident alien, you cannot claim the credit if for tax purposes you are not elected to be treated as a resident alien.

Limitations of Income

The amount you can claim for the Lifetime Learning Credit starts to phase-out at a certain income limit.

If your MAGI or the modified adjusted gross income is less than the phase-out limit, your tax credit amount will not be reduced but if your income is greater than the phase-out limit, then your MAGI will be reduced. In 2019, the MAGI thresholds are $58,000.00 for the head of household or single filers. For married and filed jointly, the MAGI threshold is $116,000.00.

Filers who are the head of the household or single cannot claim the credit if the MAGI exceeds $68,000. For married and joint filers if the MAGI exceeds $136,000.00, the credit also can’t be claimed.

Comparing the Lifeline Learning Credit to the American Opportunity Tax Credit

For the first four years of baccalaureate classes, the American Opportunity Tax Credit is restricted. In any levels of post-secondary education – graduate, extension courses, undergraduate or even in vocational schools, the Lifetime Learning Credit is available.

The American Opportunity Credit and the Lifetime Learning Credit cannot be claimed at once for the same year with the same student. But Lifetime Learning Credit can be claimed for one student and another student the American Opportunity Credit.

The credit offered by the American Opportunity Credit is often grater, therefore the taxpayers usually claim the Lifetime Learning Credit if they are not capable of claiming the American Opportunity Credit because of its restrictions to enrollment.

For single taxpayers, the American Opportunity Credit starts phasing out with the modified adjusted gross income or MAGI of $80,000.00 and $160, 000.00 for married couples jointly filing. Taxpayers with MAGIs of $90,000 or $180,000 correspondingly are not qualified to claim the credit. Compared to the Lifetime Learning Credit, this is a slightly higher income range.

American Opportunity Credit is refundable to up to 40 percent. If you have some credit saved over after it decreases the owed tax to zero, a refund of up to 40 percent from the total credit is refunded to you. This is not the case for the Lifetime Learning Credit since this credit is not refundable. Any tax that you might owe can be brought down to zero, but the rest will be kept by the IRS.

Primarily, the American Opportunity Credit is looking toward a four-year degree program. There must be no felony drug convictions gone through by the student. Having convicted with a felony does not automatically disqualify the student from the Lifetime Learning Credit. 

How Lifetime Learning Credit Can Be Claimed

IRS Form 8863 filing with your tax return is required in claiming the Lifetime Learning Credit. Finishing Parts III and IV of IRS Form 8863 will make it easier for you to figure out the credit amount that you can claim.

Periodically, the tax laws changes and for the most up-to-date advice, you must always consult with a tax professional. This article is not meant as tax advice and does not intend to replace tax advice.

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