The Lifetime Learning Credit is a tax credit worth up to $2,000 that can help offset the costs of higher education. You must have qualifying education expenses for yourself, your spouse, or a dependent. If you qualify for the credit, you can subtract the amount of the credit from your tax bill.
The Lifetime Learning Credit (LLC) differs quite a bit from the American Opportunity Credit (AOC). The AOC is worth up to $2,500 and, unlike the LLC, is partially refundable. Also, the rules for qualifying expenses are slightly easier to meet with the AOC. But the LLC applies to more types of post-secondary education, while the AOC is limited to the first four years of college leading to a degree.
Income limits for the Lifetime Learning Credit
While the Lifetime Learning Credit is a valuable tax benefit, there are income limits that might prevent you from claiming it. The American Opportunity Credit has the same income limits as the Lifetime Learning Credit.
Both of these tax credits’ income limits are based on your modified adjusted gross income (MAGI), which for the purposes of the LLC and the AOC generally is your adjusted gross income (AGI) with the following added back in, according to the IRS: foreign earned income exclusion, foreign housing exclusion or deduction, or exclusion of income by residents of American Samoa or Puerto Rico.
Lifetime Learning Credit income limits for the 2024 tax year
These income limits also apply to the American Opportunity Credit.
| Single, head of household, or qualifying surviving spouse | Married filing jointly | |
| Full tax credit | Less than $80,000 | Less than $160,000 |
| Partial tax credit | $80,000 to $90,000 | $160,000 to $180,000 |
| Ineligible for the tax credit | $90,000 or more | $180,000 or more |
Note: People who file as married filing separately are ineligible for both the Lifetime Learning Credit and the American Opportunity Credit.
Eligible expenses for the Lifetime Learning Credit
To claim the Lifetime Learning Credit, you must have eligible expenses from a qualifying post-secondary school (that is, after high school). This includes undergraduate and graduate school courses, as well as classes you might take to improve your job skills. Unlike the American Opportunity Credit, you don’t have to be working toward a degree to qualify for the Lifetime Learning Credit.
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.
For both the Lifetime Learning Credit and the American Opportunity Credit, qualifying expenses include tuition and required enrollment fees.
However, for the Lifetime Learning Credit, textbooks, supplies, and equipment are eligible expenses only if they’re required to be paid to the school as a condition of enrollment. This differs from the American Opportunity Credit, which allows for materials that aren’t bought directly from the educational institution.
How to claim the Lifetime Learning Credit
To claim the Lifetime Learning Credit, you’ll need to fill out IRS Form 8863 (see IRS instructions for 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.
While the American Opportunity Credit is limited to the first four years of post-secondary education, there’s no limit to the number of years for which you can claim the Lifetime Learning 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 money back as a refund. This is another way that the Lifetime Learning Credit differs from the American Opportunity Credit: With the AOC, you may qualify for a partial refund of the tax credit.
For example, if your tax bill is $1,500 and you qualify for the full $2,000 Lifetime Learning Credit, your tax bill will drop to zero but the remaining $500 won’t be refunded to you.
With the AOC, up to 40% of the tax credit may be refundable, if you qualify.
Lifetime Learning Credit versus American Opportunity Credit
You can’t claim both the Lifetime Learning Credit (LLC) and the American Opportunity Credit (AOC) for the same student in the same year. (The IRS definitely frowns on double-dipping on education tax benefits.) You can, however, claim both tax credits on the same tax return if two different people qualify for each credit — for example, if you’re married filing jointly and/or have dependents.
While the AOC is worth more — up to $2,500 per eligible student, compared with up to $2,000 per tax return for the LLC — it can only be claimed for the first four years of post-secondary education leading to a degree or recognized credential. 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’re enrolled in graduate school or other continuing education programs.
Read the full article here
