Taxpayers attending college may be eligible for the Lifetime Learning Tax Credit. This is a credit – not a deduction – which gives a dollar-for-dollar credit toward your tax liability, reducing the amount you may owe. It applies to the first $10,000 you pay in qualified tuition and other qualified educational expenses.
How do you Qualify for It?
Qualifying for the Lifetime Learning Tax Credit is simple:
- You or a dependent must be enrolled in an eligible post-secondary educational institution; it doesn’t have to be toward a degree
- You must be taking the courses to obtain a degree, obtain a job in a certain sector, or receive any other educational credentials
- You must be enrolled at least one semester, trimester or any other academic period the institution uses in pursuit of a higher education
Income Limits for the Lifetime Learning Tax Credit
Like most credits, there are income limits for the Lifetime Learning Credit. If your modified adjusted gross income is between $58,000 and $68,000 for single filers or $116,000 and $136,000 for married filing joint, your credit may be reduced or phased out. It is phased out at the highest levels ($68,000 for singles and $136,000 for joint), which means you can’t take the credit.
How Do You Claim The Lifetime Learning Tax Credit?
If you are eligible, you should receive Form 1098-T from your educational institution by January 31. You need this statement to determine your credit.
- Use Form 1098-T to complete Form 8863
- Complete parts 3 and 6
- Move the credit to your 1040
- Include Form 8863 when you send in your tax returns
How To Calculate How Much You Are Eligible For
The first $10,000 you spend on educational expenses is eligible for the credit. You may be eligible to claim up to 20% of the first $10,000 spent – in other words, a maximum credit of $2,000.
Your $10,000 may include tuition, books, supplies, or other fees required to pursue your education. It must be a condition of enrollment in order to qualify. Any expenses that are an option and won’t prohibit you from enrolling do not count.
The IRS offers a few options for educational tax credits, but you may only choose one. The other tax credit pertaining to education is the American Opportunity Tax Credit. If you are unsure which credit will provide a lower tax liability, talk with a tax professional. Many who claim the American Opportunity Tax Credit find it provides more savings and as long as they are within your first four years of college.
If you pay for post-secondary education and are beyond your first four years in college, the Lifetime Learning Tax Credit can be a great way to offset your costs. Remember, it is a federal income tax credit, so it’s a dollar-for-dollar credit toward your tax liability. It is not a refundable tax credit, though. This means you may only claim the credit for up to the amount you owe in taxes – you cannot receive any cash in hand.