Lifetime Learning Credit Rules
If you are currently a student, but have completed four years of post-secondary study, claiming the lifetime learning credit can save you up to $2,000 on your federal income tax bill. However, before calculating your lifetime learning credit on Form 8863, you need to insure that you can satisfy all requirements since not every student is eligible.
The IRS doesn’t impose too many requirements to claim the lifetime learning credit. Provided you enroll in at least one class during the tax year at an eligible educational institution, you can use your education expenses to qualify for the tax credit. An eligible educational institution is any college, university or trade school that can provide its students with opportunities to obtain federal student financial aid–such as Stafford loans. However, it’s not necessary that you receive student aid to be eligible to take the lifetime learning credit. And unlike the American opportunity credit, which requires the student to enroll in a degree program–taking a single course at your local college to improve job skills is sufficient.
Calculate Lifetime Learning Credit on Form 8863
Satisfying the eligibility requirements of the lifetime learning credit is just the first step. When it comes time to prepare your taxes, you must calculate the credit on Form 8863 and attach it to your income tax return. As you prepare the form, only fill out the parts that relate to the lifetime learning credit since it also includes a separate section for the American opportunity credit calculation. When reporting your education expenses, only include the tuition and fees you pay to your school, regardless of whether you pay it with savings, a student loan or a gift from a family member. Your school will report your tuition and fee payments that are eligible for the credit on a Form 1098-T, which in most cases, you will receive in the mail. The lifetime learning credit doesn’t allow you to include the cost of books and supplies unless your school requires direct payment for these items as a condition of enrollment. Form 8863 then calculates your lifetime learning credit by multiplying a maximum of $10,000 in education expenses by 20 percent. The resulting credit reduces your tax bill on a dollar-for-dollar basis and saves you more in tax than a deduction of the same amount.
Lifetime Learning Credit MAGI Limitations
One thing to keep in mind before you even start preparing your Form 8863 is that the amount of your lifetime learning credit is subject to reductions if your modified adjusted gross income (MAGI) is more than $51,000, or $102,000 if filing a joint return. Your MAGI is based on the adjusted gross income (AGI) reported on the first page of your income tax return. But in most cases, for purposes of taking one of the education tax credits, your MAGI is the same as your AGI.
Reference: Instructions for Form 8863
