Lifetime Learning Credit

Lifetime Learning Credit

A direct, dollar-for-dollar reduction of one's tax liability for money spent on higher education. In order to be eligible for the lifetime learning credit, one must have modified adjusted gross income within the limits set by Congress and have a family member enrolled in at least one class at a college, university, technical school, or vocational training. The credit is worth up to $2,000 per year and is non-refundable. Generally speaking, one may not claim a lifetime learning credit if one paid for the class through a 529 plan or if it is deducted as a business expense. Notably, one does not need to pursue a degree in order to be eligible for the credit.

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Lifetime learning credit. You may qualify to claim a lifetime learning tax credit of up to $2,000 each year for qualified higher educational expenses for yourself, your spouse, or a dependent if your family's modified adjusted gross income falls within the annual limits that Congress sets. Those amounts tend to increase slightly each year.

The education must be one or more courses but doesn't have to be part of a degree- or certificate-granting program, though the tax credit can be used for undergraduate, postgraduate, or professional studies.

Even if you are paying for more than one person's education, you can take only one lifetime learning credit per year.

If you claim the credit while you're taking withdrawals from tax-free college savings plans such as a Section 529 plan or an education savings account (ESA), you'll have to plan carefully. Your withdrawals will lose their qualified status and be subject to tax and penalty if you use them to pay for the same expenses for which you claim the tax credit.

You can't take the credit, though, if you claim a tuition and fees deduction in calculating your adjusted gross income or deduct the amount as a business expense.

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Lifetime Learning Credit

A nonrefundable credit equal to 20% of the first $10,000 of qualified higher education tuition and fees paid during the year on behalf of the taxpayer, his or her spouse, or his or her dependents. Students attending school in the Gulf Opportunity Zone may qualify for a credit of 40% of their expenses up to $4,000 for 2005 and 2006. See Form 8863.