People of all ages can find themselves pursuing additional education. Maybe you’re a student working toward a graduate degree, or perhaps you’re a professional who’s taking a course to stay on top of changes in your field. Fortunately, the U.S. government offers a tax break known as the Lifetime Learning Credit that can help offset the costs of higher education for some people. Here’s how to figure out if you qualify.
The Lifetime Learning Credit: An overview
The Lifetime Learning credit is a tax credit that helps reduce the tax bill for people who have qualifying education expenses for themselves, their spouse or a dependent. Qualifying expenses include student fees, textbooks and necessary educational supplies and equipment. If you qualify for the credit, you can subtract the amount of the credit from your total tax bill. The maximum credit is $2,000 per tax year.
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Do I qualify for the Lifetime Learning Credit?
There are some important limitations on the Lifetime Learning Credit that you should know about when you’re determining whether or not you qualify. First, the Lifetime Learning Credit is only for expenses at a qualifying post-secondary—that is, post-high school—school. This includes undergraduate and graduate school courses, as well as classes you might be taking to improve your job skills; you do not have to be working toward a degree to qualify for the credit. To qualify, you must have enrolled for at least one academic period—such as a semester, trimester, or quarter, depending on how the school works—during the tax year in question.
Only required expenses qualify for the Lifetime Learning Credit. That means that mandatory student fees and equipment count toward the credit, while non-required ones—such as an optional textbook for a particular class—do not.
There are income limits to the Lifetime Learning Credit, which means that you might not qualify for the credit if your income is above a certain level. In 2017, single taxpayers with a modified adjusted gross income (MAGI) between $55,000 and $65,000 (or married taxpayers filing jointly with a MAGI between $110,000 and $130,000) can claim a reduced tax credit.
How do I claim the Lifetime Learning Credit?
To claim the Lifetime Learning Credit on your taxes, you’ll need to fill out IRS Form 8863. You can claim up to 20 percent of your first $10,000 in educational expenses, or a maximum of $2,000 per tax return. There’s no limit to the number of years during which you can claim the credit, as long as you meet the qualifications.
The Lifetime Learning Credit is a non-refundable tax credit. That means if the credit is worth more than the amount you owe in taxes, your tax bill will be zero but you won’t get any money back as a refund.
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Other opportunities: The American Opportunity Tax credit
The Lifetime Learning Credit is not the only tax credit for educational expenses. There is also the American Opportunity Tax Credit (AOTC). You cannot claim both tax credits in the same year.
While the AOTC has a higher maximum credit than the Lifetime Learning credit, it can only be claimed for four years of post-secondary education. For this reason, many people choose to claim the AOTC when they (or their dependents) are working toward an undergraduate degree, and then claim the Lifetime Learning Credit when they are enrolled in graduate school or other continuing education programs.
By examining eligibility requirements and reviewing the details of your education expenses, you can better choose which tax credit provides will make the biggest difference on your tax bill.