Overview of the Lifetime Learning Credit:
The Lifetime Learning Credit provides up to $4,000 as a tax credit for any type of post-secondary education, including classes taken to improve or acquire job skills.Unlike the Hope Scholarship, this credit can be claimed for part-time students. It can also be claimed for an unlimited number of years.
Tax credits are more favorable than tax deductions, since the amount received represents a direct credit against taxes owed.
Eligible Expenses:
- Tuition (not room and board)
- Books, fees, and equipment, if required by the university
Rules for the Lifetime Learning Credit:
- Classes taken for fun, as a hobby, for no credit, or as a sport aren’t eligible.
- Cannot be used on tuition that was paid for with a grant, scholarship, or employer funds.
- Can only be claimed once per year per household, even if multiple students are eligible.
Formula:
The credit is easy to calculate. Your taxes owed will be reduced by 40% of the first $10,000 in qualified expenses.
Recipient of Credit:
The Lifetime Learning Credit can be claimed by whoever files the student’s tax return, as long as their filing status is not "married filing separately." If the student is not included on a parent’s tax return as a dependent, then the student can claim the credit.
2009 Income Phase-Outs for Lifetime Learning Credit:
The Lifetime Learning Credit is reduced (or “phased-out”) for taxpayers with certain levels of Modified Adjusted Gross Income (MAGI).For taxpayers claiming a Single, Head of Household or Widow(er) status:
- $50,000 (MAGI) or less– The full credit is permitted.
- $50,001 - $59,999 (MAGI) – A partial credit is permitted.
- $60,000 (MAGI) or more– No credit is permitted.
For taxpayers claiming a Married Filing Jointly status:
- $99,999 (MAGI) or less– The full credit is permitted.
- $100,000 - $119,999 (MAGI) – A partial credit is permitted.
- $120,000 or more – No credit is allowed.
Coordination with Other Tax Benefits:
The Lifetime Learning Credit cannot be used in the same year for the same student as the Hope Credit or Tuition and Fees Deduction. Additionally, you cannot claim a business deduction on the expenses you claim the credit on if you are taking the classes to improve your job skills.It can be coordinated with and used in the same year as Coverdell ESA and Series EE and I withdrawals.
For example: You cannot take a $10,000 withdrawal tax-free from a Coverdell ESA and also claim the Lifetime Learning Credit on that same amount.
However, you could pay the first $10,0000 in tuition from another source and claim the credit, then take additional funds from a Coverdell ESA and avoid taxation on those funds.
