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 The Lifetime Learning Credit is a tax credit aimed at helping to offset the cost of higher education by reducing the taxable income of those paying for certain college related expenses. The Lifetime Learning Credit allows you to take a tax credit of $2,000 for those qualifying expenses of an eligible student.
Lifelong Learning Tax Credit
You're going to find that many of the rules and qualifying expenses of the Lifetime Learning Credit are similar to those of the Hope Tax Credit. So if you're aware of the Hope Credit, much of the Lifetime Learning information will look familiar to you.
The Lifetime Learning tax credit applies to 20% of the first $10,000 of a taxpayer's out-of-pocket expenses for all students attending an institution of higher education. This means the maximum tax credit you can claim under the Lifetime learning provision is $2,000 each year you qualify.
Lifetime Learning Credit Eligibility Rules
The Lifetime Learning Credit eligibility rules are fairly complex. There are income limits, qualifying educational institutions, qualifying expenses, and even qualifying students. You've also got to understand how the Hope and Lifetime Learning tax credits fit together.
Lifetime Learning Income Limits
In 2006, the income limits under the lifetime learning program increased. You can now claim a full credit if your modified adjusted gross income is less than $45,000 or $90,000 if you file a joint return. You're no longer eligible to claim this credit if your modified adjusted gross income is over $55,000 or $110,000 if you're filing a joint return.
Qualifying Educational Institutions
If the educational institution qualifies to participate in a student aid program administered by the Department of Education, then it's likely to qualify for the Lifetime Learning program tax credit too. This includes non-profit, private and public colleges, universities, vocational schools, or any other kind of post-secondary educational institution.
Qualifying Expenses
Qualifying expenses are those that are for yourself, your spouse, or any individual that you claim as a dependent on your tax return. You're allowed to take this credit on expenses paid for an academic period that begins in the fall though the first three months of the following year - so the expenses follow a typical academic calendar year.
Qualifying expenses under the Lifetime Learning program include tuition as well as a student's activity fees and expenses related for course-related books, supplies, and equipment. These fees are qualifying expenses if the educational institution requires the payment of this money as a condition of enrollment or attendance at school.
Expenses that do not qualify for help under Lifelong Learning include insurance, medical expenses, room and board, transportation expenses, and other similar living expenses. Expenses related to sports, games, hobbies, and non-credit course are generally excluded from the definition of qualifying expenses. However, if these expenses are associated with a student's degree program or are incurred to improve job skills, they may qualify.
Finally, if a student withdraws from class, you can still claim a Lifetime Learning credit for those expenses that are not refunded by the educational institution following withdrawal.
Qualifying Students
Non-alien residents are normally not eligible to claim the lifetime learning tax credit. And unlike the Hope Scholarship Credit, students do not have to be enrolled at least half time in one of the first two years of post-secondary education.
Exclusions from the Lifetime Learning Credit
The exclusions from the Lifetime Learning credit are pretty straightforward. You cannot take the Lifetime Learning credit if any of the following conditions apply:
- You don't meet the modified adjusted gross income requirements mentioned earlier.
- You're listed as a dependent on another person's tax return.
- Your tax filing status is married, filing separately.
- You or your spouse was resident non-aliens for any part of the tax year and you did not elect to be treated as a resident for tax purposes.
- Finally, you cannot claim the Hope Credit for the same student in same tax year you claim the Lifetime Learning credit.
Hope Credit versus Lifetime Learning Credit
Unlike the Hope Credit, the Lifetime Learning credit is provided on a family basis, not a student basis. You cannot claim the Hope Credit and the Lifetime Learning credit in the same tax year for the same student. But for each student, you can pick which credit applies in that particular tax year.
Lifetime Learning Example
For example, let's say two family members are attending school and the first member has $10,000 in eligible expenses and the second member has $20,000 in eligible expenses. The lifetime learning tax credit applies to 20% of the first $10,000 in eligible expenses. So that taxpayer can only claim a lifetime learning credit of $2,000 in that tax year for this first family member. But if the student qualifies, you can claim a Hope Credit for the second family member.
Finally, with the Lifetime learning credit, there is no limit on the number of years over which you can claim this credit for a student - there is a limit for the Hope Scholarship Credit. For example, as long as all of the eligibility requirements are met, a student enrolled in just one college level class each tax year is eligible to claim the lifetime learning credit each and every year.
The Lifetime Learning tax form is IRS form 8863.
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