What Is the Lifetime Learning Credit?
Understand the federal Lifetime Learning Credit to save on higher education costs, including professional development.
The Lifetime Learning Credit is a federal tax credit designed to assist taxpayers with the costs of higher education. This non-refundable credit helps individuals pursue educational goals, covering expenses for undergraduate, graduate, and professional degree courses. It also extends to courses taken to acquire or enhance job skills.
Understanding the Credit’s Purpose and Value
The Lifetime Learning Credit (LLC) is a non-refundable tax credit. It can reduce your tax liability to zero, but it will not generate a refund if the credit amount exceeds the taxes you owe. This credit is calculated as 20% of the first $10,000 in qualified education expenses, resulting in a maximum credit of $2,000 per tax return. This $2,000 maximum applies per tax return, not per student, regardless of how many eligible students are included.
The Lifetime Learning Credit is available for an unlimited number of tax years. The LLC can be claimed for courses taken to acquire or improve job skills, even if they are not part of a degree program.
Determining Eligibility
To claim the Lifetime Learning Credit, specific student and taxpayer requirements must be met, along with income limitations. The student must be enrolled or attending an eligible educational institution for at least one academic period in the tax year. This enrollment must be for courses that are part of a degree, a recognized educational credential, or are taken to acquire or improve job skills.
The taxpayer claiming the credit must have paid qualified education expenses for an eligible student, who can be themselves, their spouse, or a dependent claimed on their tax return. If a student is claimed as a dependent on another person’s tax return, they cannot claim the credit themselves. Taxpayers must also consider their Modified Adjusted Gross Income (MAGI), as the credit is subject to income phase-out ranges. For tax years 2024 and 2025, the credit begins to phase out for single filers with a MAGI between $80,000 and $90,000, and for those married filing jointly with a MAGI between $160,000 and $180,000. The credit is completely eliminated for single filers with a MAGI of $90,000 or more, and for married couples filing jointly with a MAGI of $180,000 or more.
Identifying Qualified Education Expenses
Qualified education expenses for the Lifetime Learning Credit include tuition, fees, and other related expenses that are required for enrollment or attendance at an eligible educational institution. Expenses for books, supplies, and equipment are considered qualified only if the educational institution requires them to be purchased directly from the institution as a condition of enrollment or attendance. This is a specific rule for the LLC that differs from other education credits.
Certain expenses do not qualify for the Lifetime Learning Credit. These include costs for room and board, insurance, medical expenses, transportation, and similar personal, living, or family expenses. Any expenses paid with tax-free educational assistance, such as scholarships, Pell Grants, or employer-provided educational assistance that is not taxable, cannot be counted toward the qualified expenses for the credit. Taxpayers should retain documentation like Form 1098-T, Tuition Statement, from their educational institution, as this form reports qualified tuition and related expenses.
Claiming the Credit on Your Tax Return
To claim the Lifetime Learning Credit, taxpayers utilize IRS Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). This form is where you will enter the total amount of your qualified education expenses. The instructions for Form 8863 guide taxpayers through the process of calculating the credit amount based on the expenses reported.
Once the credit amount is determined on Form 8863, it is transferred to Schedule 3 (Form 1040), Line 3, which reduces the taxpayer’s total tax liability on their main Form 1040. Taxpayers should maintain thorough records, including Form 1098-T and receipts for all qualified expenses, to substantiate their claim in case the IRS requires verification. Tax preparation software or a qualified tax professional can also provide assistance in accurately completing and filing the necessary forms.