The Lifetime Learning Credit
Of the various education tax breaks available, the Lifetime Learning credit is a tax credit available for an unlimited number of years in which a student takes one or more postsecondary educational courses. The courses can apply toward an undergraduate, graduate or professional degree; certificate program; or other academic credential. You can claim the credit for yourself, your spouse if you file joint tax returns, and any dependents you claim on your tax return.
The only expenses that count toward the credit are the tuition and fees required for attendance at eligible institutions. Eligible institutions are any accredited public, nonprofit, or for-profit postsecondary institution eligible to participate in financial aid programs.
How much is the Lifetime Learning credit worth? It works like this: The credit is worth 20 percent of the first $10,000 in higher education expenses per family for the year. That amount is per family, not per student. That translates to a maximum credit of $2,000.
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Did You Know?
The Gulf Opportunity Zone Act of 2005 doubles the Lifetime Learning credit for individuals who attend an eligible educational institution in the Hurricane Katrina GO Zone (i.e., a declared disaster area affected by Hurricane Katrina) for any tax year beginning in 2005 or 2006. The Lifetime Learning credit for qualifying students increases to a $4,000 maximum. In addition, certain room and board expenses qualify.
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OK, $2,000 isn't a huge amount, but with education costs being what they are, you'll take it if you qualify. The final step in determining whether you are eligible to take the Lifetime Learning credit is based on your adjusted gross income. For purposes of the Lifetime Learning credit, your adjusted gross income is modified by adding back any of the foreign earned income exclusion, adding any amounts derived from sources in American possessions if are a resident of the possession. Possessions include American Samoa, Guam, the Northern Mariana Islands, and Puerto Rico.
For single individuals, the credit starts to phase out when their modified adjusted gross income reaches $48,000 for 2008 ($47,000 for 2007) and is completely phased out when the adjusted gross income is $58,000 for 2008 ($57,000 for 2007). Married folks, who must file a joint tax return to claim the Lifetime Learning credit, start to lose the credit when their modified adjusted gross income reaches $96,000 for 2008 ($94,000 for 2007) and completely lose the credit when their adjusted gross income reaches $116,000 in 2008 ($114,000 in 2007). These amounts may be adjusted annually for inflation.
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Tip
The Lifetime Learning credit is calculated per family, and not per student. Therefore, the number doesn't vary based on how many students are in each family. A double benefit is not allowed. So if you're a parent, either you or your dependent child can take the credit. (If you do not claim your child as a dependent, the scenario changes because he is not part of your family for purposes of this credit). However, if one or more students in a family are eligible for another credit or deduction, for example the Hope Scholarship credit, other family members can use the full amount of the Lifetime Learning credit.
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When you're deciding whether to take advantage of the Lifetime Learning credit, you should take into consideration that you could be precluded from claiming other education deductions and credits. For example, if you claim the Lifetime Learning credit, you cannot claim the Hope Scholarship credit in the same year. Also, you can't take a tax deduction for education expenses in the same year that you claim the Lifetime Learning credit. And while you can claim a Lifetime Learning credit in the same year that you receive Coverdell Education Savings Account (CESA) distributions, that's only true if the CESA distribution is not used to pay for the same expenses for which you claimed the Lifetime Learning credit.
If you're interested in claiming the Lifetime Learning credit, you will have to complete IRS Form 8863, Education Credits and attach it to your income tax return.
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