Description
The Lifetime Learning credit equals 20 percent of the first $10,000 of
qualified expenses (tuition, fees required for enrollment, and required course
materials). The maximum credit is
$2,000. The credit is allowed for each eligible student, for an
unlimited number of years of qualified expenses. An eligible student is defined
as a dependent of the taxpayer, or the taxpayer or taxpayer's spouse, if they
are not claimed as a dependent on another person's tax return. An eligible
student must be enrolled in one or more postsecondary courses to qualify for the
credit. The credit is nonrefundable; that is, it can only be used to offset
income tax liability. Any credit amount that exceeds liability may not be
carried forward to future tax years.
Tax benefits
The Lifetime Learning credit directly offsets federal income tax liability,
reducing liability by up to $2,000. There are no state tax benefits.
Interaction with other programs
Taxpayers may not claim both the American Opportunity credit and the Lifetime Learning
credit for the same student in one tax year, but may claim the American Opportunity credit
during the first four years of a student's postsecondary education, and the
Lifetime Learning credit in following years. Taxpayers may not claim the
Lifetime Learning credit for higher education expenses paid for with proceeds
from the sale of qualified U.S. savings bonds if the taxpayer chooses to deduct
the bond interest income as allowed under the Education Savings Bond
program. Students may pay for expenses not counted towards claiming the Lifetime
Learning credit with funds withdrawn from a QTP or
from a Coverdell ESA. Taxpayers may claim the Lifetime Learning credit
for expenses paid for with funds obtained through a student loan, with
the interest on the loan allowed as an income tax deduction at the time the loan
is repaid. The amount of Lifetime Learning credit claimed does not reduce the
amount of state financial aid for which the student is eligible.
Eligibility
The Lifetime Learning credit is subject to an income-based phaseout. In tax
year 2016, the
credit is phased out for married taxpayers with modified adjusted gross income (AGI)
between $111,000 and $131,000, and for single filers (generally students) and heads of
household (generally single parents of students) with modified AGI between
$55,000 and $65,000. The phase-out range is adjusted
annually for inflation. Taxpayers with modified adjusted gross
income above the phase-out may not claim the Lifetime Learning credit. Modified
adjusted gross income equals adjusted gross income plus foreign earned income,
housing costs of individuals living abroad, and income from sources within Puerto
Rico and U.S. territories.
March 2016