The Lifetime Learning tax credit amounts to 20% of the first $10,000 tuition fee paid every year till it reaches $2,000. To claim the entire $2,000 credit, you must have at least $10,000 in qualified expenses. Spending just $5,000 will make your credit reduce to $1,000.
There are some advantages to the Lifetime Learning credit. One is that it is not limited to the first four years of undergraduate studies. Also, students do not have to be enrolled full-time. Besides, taking a single class is enough to make you qualify.
As long as your college is accredited, it qualifies as an eligible educational institution. As long as the learning institution is eligible for federal student aid programs, you can use the tuition to claim Lifetime Learning credit, even if it is a vocational school, unlike American Opportunity Tax Credit.
All expenses paid for tuition and any other fees like registration and student body fees are qualified expenses. It, however, does not include money for textbooks, board and room supplies, equipment, transportation, health fees, insurance, and others.
It is a must for you to be on the hook for paying these fees as you are served the bills. Your qualifying expenses must be reduced by any financial assistance coming from reimbursements, grants, or scholarships. If you, however, pay your college with borrowed funds, you do not have to reduce them
You are qualified to claim a credit on your tax return if you have a child going to college, and the responsibility lies on you. If your child, however, is footing her bill, she qualifies to claim the education credit on her tax return. This is not valid if you, however, claim her as a dependent.
If you are paying the college expense of someone that is not your dependent, you cannot claim the Lifetime Learning Credit. Also, a married couple filing a separate tax return cannot claim it. As a nonresident alien, you can only claim it if you chose to be treated as a resident alien for tax purposes.
There is some income limit in which the amount of lifetime Learning credit you can claim will start to phase out. If your modified adjusted gross income (MAGI) is below the phase-out limit, the amount of tax credit you can claim will not be reduced. It will, however, reduce if your income is more.
In 2018, the threshold for modified adjusted gross income was $58,000 for single and $116,000 for married joint filers.
Unlike Lifetime learning tax credit, the American Opportunity tax credit only applies to the first four years of undergraduate classes. Lifetime Learning tax credit, however, refers to any post-secondary education level, as discussed above.
It is impossible to claim both the American Opportunity Credit and Lifetime Learning credit in the same year for a single student. You, however, can request one for a student and the other for another student as well.
Many at times, the American Opportunity credit could be higher. As a result, taxpayers will claim the Lifetime Learning credit when they do not qualify for the American Opportunity Credit.
You can be refunded up to 40% of the American Opportunity Credit. Should any of your credit reduce your credit to zero, you are qualified for a refund, as much as 40% of your entire credit. While the Lifetime Learning credit cannot be refunded, it can reduce any tax owed to zero.
To qualify for the American Opportunity Credit, you must have no felony drug convictions. You must also be enrolled for a four-year program. A felony charge, however, does not determine your qualification for the lifetime learning credit.
To claim the lifetime learning credit, you need to fill form 8863 alongside your tax return. When you complete the third and fourth part of the form, you get to determine the amount of credit you owe.
You are eligible for the Lifetime Learning credit if any of your dependents, including you, your kids, or your spouse, are enrolled in a qualified educational institution. If the financial responsibilities of the college cost lie on you, $10,000 is the threshold.
Premier Accounting & Tax