How to Calculate the Lifetime Learning Credit

The Lifetime Learning Credit (LLC) is a nonrefundable tax credit for taxpayers who pay for courses at eligible educational institutions. It helps cover costs for undergraduate, graduate, and professional degree programs, and courses taken to acquire or improve job skills. This credit reduces a taxpayer’s final tax liability on a dollar-for-dollar basis. There is no limit on the number of years the LLC can be claimed, but the credit is calculated based on qualified education expenses and is subject to income limitations.

Determining Qualified Education Expenses

Qualified education expenses are composed of tuition and fees required for enrollment or attendance at an eligible educational institution. An eligible school is one that can participate in the U.S. Department of Education’s student aid programs, which includes most accredited postsecondary institutions. The focus is on costs that are a condition of enrollment, meaning you could not attend the course without paying them.

Certain costs are excluded from qualified education expenses, even if paid to the institution. These include:

• Room and board
• Student health insurance
• Medical expenses
• Transportation
• Other personal living costs

Your educational institution will provide Form 1098-T, Tuition Statement, which reports amounts paid for qualified tuition and related expenses. This form is a starting point, but it may not include all qualifying costs. Course-related books, supplies, and equipment are considered qualified expenses only if they must be paid to the institution as a condition of enrollment. You must maintain receipts to substantiate any additional expenses.

You cannot use expenses paid with tax-free educational assistance, such as scholarships, grants, or employer-provided aid, to calculate the credit. The LLC can only be claimed on out-of-pocket expenses.

Calculating Your Tentative Credit

After totaling your qualified education expenses, you can calculate your tentative credit. The Lifetime Learning Credit is 20% of the first $10,000 in qualified expenses. This calculation is performed on a per-return basis, not per-student, meaning the maximum tentative credit for any tax return is $2,000, regardless of how many students have qualifying expenses.

For example, if you paid $3,000 in qualified tuition, your tentative credit would be $600 (20% of $3,000). If your expenses were $15,000, your credit is still calculated on the first $10,000, resulting in the maximum tentative credit of $2,000. This amount is considered “tentative” because it may be reduced based on your income.

Applying Income Limitations

The tentative credit is subject to a reduction based on your Modified Adjusted Gross Income (MAGI). For the LLC, MAGI is your Adjusted Gross Income (AGI) with certain foreign-earned income and housing deductions added back; for most people, MAGI is the same as AGI. Your income determines if you can claim a full, reduced, or no credit.

The IRS sets MAGI phase-out ranges annually. For the 2025 tax year, the LLC begins to phase out for single filers with a MAGI between $80,000 and $90,000. For those married filing jointly, the range is between $160,000 and $180,000. If your MAGI is below the lower threshold, you are eligible for the full tentative credit, while a MAGI above the upper threshold means you cannot claim the credit.

If your MAGI falls within the phase-out range, you must calculate your allowable credit. First, subtract the lower threshold amount for your filing status from your MAGI. Next, divide this result by the size of the phase-out range ($10,000 for single filers and $20,000 for joint filers) to get a reduction percentage.

For example, a single filer with a MAGI of $85,000 and a tentative credit of $2,000 is $5,000 into the $10,000 phase-out range. Dividing $5,000 by $10,000 yields a reduction factor of 0.50 (50%). You multiply the tentative credit ($2,000) by this factor to find the reduction amount ($1,000). The final allowable credit is the tentative credit minus the reduction, which would be $1,000.

Claiming the Credit on Your Tax Return

To claim the Lifetime Learning Credit, you must complete Form 8863, Education Credits, and attach it to your Form 1040 tax return. This form is used to formally calculate and claim both of the main education credits.

On Form 8863, you will enter the student’s name, taxpayer identification number, and the institution’s information in Part III. Part II of the form guides you through the calculation, where you will input your total adjusted qualified education expenses and multiply them by 20% (up to the $10,000 limit) to arrive at the tentative credit.

The form then walks you through the income limitation calculation based on your MAGI to find your final allowable credit. This final amount from Form 8863 is transferred to Schedule 3 (Form 1040), Additional Credits and Payments, and added to your other nonrefundable credits.