The Lifetime Learning Credit helps taxpayers to offset the cost of higher education. The credit does so by reducing the income taxes owed by individuals paying for certain college-related expenses. The Lifetime Learning Credit allows for a tax credit of $2,000 for those qualifying expenses of an eligible student.
Lifelong Learning Credit
Many of the rules, and qualifying expenses, of the Lifetime Learning Credit are similar to those of the Hope Scholarship Credit. Anyone that's reviewed the qualifying rules of that program will see the Lifetime Learning information is nearly identical.
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In 2018 and 2019, The Lifetime Learning 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 claimed under the Lifetime Learning provision is $2,000 per year.
Eligibility Rules
The Lifetime Learning Credit eligibility rules are fairly complex. There are income limits, qualifying educational institutions, qualifying expenses, and even qualifying students. Taxpayers also need to understand how the Hope and Lifetime Learning tax credits work together.
Income Limits
In 2018, the income limits under the Lifetime Learning program increased. It's now possible to claim a full credit if a taxpayer's modified adjusted gross income is less than $57,000 for individuals, or $114,000 if filing a joint return. In 2019, the income limits increase to $58,000 for individuals, and $116,000 if 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's tax credit too. This includes non-profit, private and public colleges, universities, vocational schools, or any other post-secondary educational institution.
Qualifying Expenses
Under this program, qualifying expenses include those of the taxpayer, their spouse, or any individual claimed as a dependent on their federal tax return. This credit applies to expenses paid for an academic period that begins in the fall through the first three months of the following year. This means 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 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 the Lifetime Learning program include insurance, medical expenses, room and board, transportation expenses, and other similar living costs. Expenses related to sports, games, hobbies, and non-credit courses 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, it's still possible to claim a Lifetime Learning Credit for those expenses that are not refunded by the educational institution following withdrawal.
Qualifying Students
Non-alien residents are usually not eligible to claim the Lifetime Learning Credit. Unlike the Hope Credit, students do not have to be enrolled at least half time in one of the first two years of post-secondary education.
Exclusions
The exclusions from the Lifetime Learning Credit are fairly straightforward. A taxpayer cannot take the Lifetime Learning Credit if any of the following conditions apply:
They don't meet the modified adjusted gross income requirements mentioned earlier.
They're listed as a dependent on another person's federal income tax return.
Their tax filing status is married, filing separately.
The taxpayer, or their spouse, was a resident non-alien for any part of the tax year, and they did not elect to be treated as a resident for tax purposes.
Finally, a taxpayer cannot claim the Hope Scholarship Credit for the same student in the same tax year they claim the Lifetime Learning Credit.
Hope Credit versus Lifetime Learning Credit
Unlike the Hope Scholarship Credit, the Lifetime Learning Credit is provided on a family basis, not a student basis. Individuals cannot claim the Hope Credit and the Lifetime Learning Credit in the same tax year for the same student. But for each student, it's possible to pick which credit applies in that particular tax year.
Lifetime Learning Example
Let's say two family members are attending school. The first member has $10,000 in eligible expenses, and the second member has $20,000 in eligible expenses. The Lifetime Learning Credit applies to 20% of the first $10,000 in eligible expenses. The 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, they 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 it can be claimed 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 Credit is claimed by completing IRS Form 8863.
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