What Is the Lifetime Learning Tax Credit?
With the rising cost of higher education, many taxpayers wonder how they can offset some of their school expenses. One option is to claim the Lifetime Learning credit on your federal income tax return. This credit reduces your tax bill on a dollar-for-dollar basis for a portion of the tuition, fees and other qualifying expenses you pay for yourself, a spouse or a dependent to enroll in school.
Key Takeaways
- The Lifetime Learning Credit is available for qualifying tuition and fee payments you made to a post-secondary school (after high school) during the tax year.
- The maximum credit you can claim is 20% of up to $10,000 in eligible costs, for a maximum credit of $2,000.
- Your educational institution should send you a Form 1098-T at the end of the year. It shows information about the tuition and fees paid to the qualifying school.
- To claim the Lifetime Learning Credit, enter the figures from the Form 1098-T you receive from your educational institution on Form 8863 and attach it to your tax return before sending it to the IRS.
Qualifying for the credit
To qualify for the Lifetime Learning Credit, you have to have made qualifying tuition and fee payments to a post-secondary school (after high school) during the year.
- The credit is available for any post-secondary classes you take at a qualifying school and you don't have to be working toward a degree. Some limitations do exist though.
- If you earn too much income during the year, you may not be eligible to claim the credit. However, this also depends on your filing status.
Calculating your credit
The maximum credit you can claim is 20% of up to $10,000 in eligible costs for a maximum credit of $2,000.
- You can include the cost of tuition, fees, and any books or supplies you are required to purchase directly from the school, so long as it's a condition of enrollment.
- For example, if your professor recommends that you purchase a textbook but you can still enroll in the class without one, then you can't include the cost of the textbook when calculating the credit.
TurboTax Tip:
For most students who are in one of their first four years of post-secondary education, the American Opportunity credit can provide greater tax savings than the Lifetime Learning Credit.
Claiming the credit
At the end of the year, your educational institution should send you a Form 1098-T that reports your eligible costs. To claim the credit, enter those figures on Form 8863.
- Complete the necessary section of the form for each eligible student.
- Transfer the credit amount to your income tax return.
- Be sure to attach Form 8863 to your tax return before sending to the IRS.
No double benefits allowed
You can't claim the American Opportunity Credit in the same year you claim the Lifetime Learning Credit for a single student. The IRS only allows one tax credit per student, per year.
- Before claiming the Lifetime Learning Credit, you should determine whether you qualify to take the American Opportunity Credit.
- For most students who are in one of their first four years of post-secondary education, the American Opportunity Credit can provide greater tax savings.
- The maximum amount for the American Opportunity Credit is $2,500, of which up to $1,000 can be refunded to you even if you don't owe any taxes.
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