Lifetime Learning Tax Credit

on April 7, 2017

Lifetime Learning Tax Credit

Amount

$2,000 per taxpayer

(20% of first $10,000)

Not refundable

Eligible Expenses

Tuition and Fees

Eligible Students

College must be eligible for

Title IV federal student aid

Number of Years

Unlimited

Income Phase-outs

$112,000 to $132,000 (MFJ)

$56,000 to $66,000 (S)

 

The Lifetime Learning Tax Credit (LLTC) is a non-refundable tax credit that provides up to $2,000 per taxpayer per year to pay for college.

 

The tax credit is based on up to $10,000 in eligible higher education expenses, equal to 20 percent of the first $10,000 in eligible expenses.

 

Eligible expenses include tuition and fees. Nonacademic fees (e.g., student activity fees and athletic fees) are not eligible. Amounts spent on course materials and living expenses (e.g., room and board, transportation, insurance and health care) are not eligible. Expenses for sports, games, hobbies and noncredit courses are not eligible unless part of the degree program. College admission application fees and admissions test fees are not eligible.

 

The Lifetime Learning Tax Credit is claimed per taxpayer, not per student, unlike the American Opportunity Tax Credit.

 

There are no enrollment status restrictions on eligible students. In particular, eligible students can be enrolled less than half-time, although they must be enrolled during at least one academic term that begins during the tax year. Eligible expenses that are incurred during the first three months of the next year may be counted as though they were paid in the current year.

 

Eligible students do not need to be seeking a degree, certificate or other recognized education credential. They can be taking classes to get or improve job skills. The classes must, however, be provided by a college or university that is eligible for Title IV federal student aid.

 

Students are eligible even if they have a felony drug conviction, unlike the American Opportunity Tax Credit.

 

The Lifetime Learning Tax Credit is available for an unlimited number of years.

 

The income phase-outs are $112,000 to $132,000 for married taxpayers filing jointly and $56,000 to $66,000 for single filers. Married taxpayers who file separate income tax returns are not eligible. The tax credit is reduced prorate within the phase-outs. The income phase-outs are adjusted annually for inflation.

 

The Lifetime Learning Tax Credit does not expire.

 

Coordination Restrictions

 

Coordination restrictions prevent double-dipping. You cannot use the same expenses to justify both the Lifetime Learning Tax Credit and another education tax benefit, such as tax-free scholarships or a tax-free distribution from a 529 college savings plan. Thus, you cannot use a qualified distribution from a 529 plan to pay for the tuition and fee expenses that are used to claim the tax credit. Each must be based on different expenses. Instead, you should use cash or loans to pay for up to $10,000 in tuition and fee expenses to qualify for the maximum tax credit.

 

A taxpayer cannot claim both the American Opportunity Tax Credit and the Lifetime Learning Tax Credit for the same student in the same tax year, even if different qualified expenses are available for each tax credit.

 

If a student is eligible for both the American Opportunity Tax Credit and the Lifetime Learning Tax Credit, the family should claim the American Opportunity Tax Credit for the student. The American Opportunity Tax Credit is better than the Lifetime Learning Tax Credit, since it yields a greater financial value per dollar of eligible expenses, is partially refundable and has higher income phase-outs.

 

The Lifetime Learning Tax Credit is best for students who have exhausted eligibility for the American Opportunity Tax Credit, such as graduate students, and for continuing education students.

 

How to Claim the Lifetime Learning Tax Credit

 

The Lifetime Learning Tax Credit is claimed on the taxpayer’s federal income tax return. The taxpayer must file IRS Form 1040 or IRS Form 1040A to claim the tax credit. Taxpayers must also complete IRS Form 8863, Education Credits (instructions), and attach it to their federal income tax return to claim the Lifetime Learning Tax Credit. Taxpayers should use IRS Form 1098-T, Tuition Statement, to complete IRS Form 8863. They should receive this form from the college by Jan. 31.

 

The Lifetime Learning Tax Credit can be claimed by either the student’s parents or the student.

  • To claim the Lifetime Learning tax credit for a student, the taxpayer must list the student as a dependent on the taxpayer’s federal income tax return. If the student is claimed as a dependent on his or her parent’s federal income tax return, expenses paid by the student are treated as though they were paid by the parent. Eligible expenses must be paid by either the student or the parents.
     
  • A student can claim the Lifetime Learning Tax Credit on the student’s federal income tax return even if the student could be claimed as a dependent on someone else’s federal income tax return, but only if the student is not claimed as a dependent on someone else’s tax return.

If the parents’ income is above the income phase-outs, it might be worthwhile for the student to claim the tax credit, if the student has a tax liability available to offset.

 

The taxpayer and the student must each have a Social Security Number or Individual Taxpayer Identification Number (ITIN) by the due date of the income tax return to claim the tax credit. Even if the taxpayer and student later get a Social Security Number or ITIN, they cannot retroactively claim the Lifetime Learning Tax Credit for tax years when either did not have a Social Security Number or ITIN.  

 

It is important to keep copies of documentation relating to the Lifetime Learning Tax Credit. If a taxpayer improperly claims the Lifetime Learning Tax Credit, they may be required to repay the Lifetime Learning Tax Credit with interest and penalties, and can be banned from claiming the Lifetime Learning Tax Credit for 2 years if the claim involved “a reckless or intentional disregard of the rules” and 10 years for fraud.

 

Additional Information

 

A good source of additional information is Chapter 3 of IRS Publication 970, Tax Benefits for Education. The statutory language appears in the Internal Revenue Code at 26 USC 25A. The regulations can be found at 26 CFR 1.25A-0, 26 CFR 1.25A-1, 26 CFR 1.25A-2, 26 CFR 1.25A-3, 26 CFR 1.25A-4 and 26 CFR 1.25A-5.

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