What Is the Maximum Years for the Lifetime Learning Credit?
The Lifetime Learning Credit has no yearly limit, setting it apart from other education benefits. Understand the key financial and taxpayer requirements to claim it.
Federal education tax credits help lessen the financial burden of higher education by directly reducing the amount of tax a person owes. The Lifetime Learning Credit (LLC) is a tax benefit available to individuals pursuing further education. It is designed to cover costs for undergraduate, graduate, and professional degree courses, as well as courses taken to acquire or improve job skills.
The Unlimited Year Rule for the LLC
Unlike other education tax benefits, there is no limit on the number of years a taxpayer can claim the Lifetime Learning Credit. This makes it a valuable tool for those in lengthy graduate programs or individuals who take courses intermittently to improve job skills. The unlimited-year rule contrasts with the American Opportunity Tax Credit (AOTC), which is limited to four tax years per student. A taxpayer cannot claim both the LLC and the AOTC for the same student in the same tax year.
While the number of years is unlimited, the LLC has an annual monetary cap per tax return, not per student. The LLC is also a nonrefundable credit, which means it can reduce a taxpayer’s liability to zero, but no portion of the credit will be paid out as a refund if it exceeds the total tax owed.
Taxpayer and Student Eligibility Rules
To claim the LLC, the taxpayer and the student must meet IRS requirements. Taxpayer eligibility is subject to income limitations based on Modified Adjusted Gross Income (MAGI). For the 2024 tax year, the credit phases out for single filers with a MAGI between $80,000 and $90,000 and for joint filers with a MAGI between $160,000 and $180,000. Taxpayers with a MAGI above these limits cannot claim the credit.
Certain filing statuses also impact eligibility, as individuals who are married but file separately cannot claim the LLC. A taxpayer also cannot claim the credit if they can be claimed as a dependent on someone else’s tax return.
For the student, the requirements are flexible. The student must be taking courses at an eligible educational institution to obtain a degree or acquire job skills. A key distinction from the AOTC is that the student does not need to be pursuing a degree or be enrolled at least half-time. This allows the credit to be used for single courses taken for professional development.
Calculating the Credit with Qualifying Expenses
Calculating the LLC begins with understanding “qualifying education expenses.” These are primarily tuition and fees required for enrollment or attendance at an eligible educational institution. This can include costs for books, supplies, and equipment if the school requires their purchase directly from the institution.
Expenses that do not qualify include costs for room and board, transportation, insurance, student health fees, and other personal living expenses. These costs cannot be included in the calculation, even if they are necessary for the student to attend school.
The credit is worth 20% of the first $10,000 of qualifying expenses paid during the tax year, for a maximum credit of $2,000. This limit is applied per tax return, not per student. For example, if a family pays $15,000 in total tuition for two students, they can only base the credit on the first $10,000 of expenses for a maximum credit of $2,000.
The Process for Claiming the Credit
To claim the credit, a taxpayer must complete IRS Form 8863, Education Credits, and attach it to their Form 1040 or Form 1040-SR. The LLC is calculated in Part II of Form 8863.
To complete Form 8863, the taxpayer will need Form 1098-T, Tuition Statement, from the student’s educational institution. This form reports the amount of tuition paid. The taxpayer must ensure they only claim expenses that meet the IRS definition of qualified education expenses, which may differ from the amount shown on Form 1098-T.