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.
Qualifying for the credit
In order to qualify for the Lifetime Learning credit, you must have made tuition and fee payments to a post-secondary school (after high school) during the year.
- You can claim the credit for any post-secondary classes you take; you don't have to be working towards 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 or $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 cannot include the cost of the textbook in the 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.
- When you prepare the form, you only need to complete parts 3 and 6 to calculate the credit amount you are eligible for.
- 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 cannot claim the American Opportunity credit in the same year you claim the Lifetime Learning credit. The IRS only allows one tax reduction 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.
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