Lifetime Learning Credit

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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.

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.

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.
References in periodicals archive ?
These income limits are higher than those for the Lifetime Learning Credit.
However, a person can claim the Lifetime Learning Credit for one student and the American Opportunity Credit for another in the same year.
In 2005, the Lifetime Learning Credit provided approximately $2.
Therefore, if neither child qualifies for the American opportunity credit, the lifetime learning credit is $1,600 ($8,000 x 20%).
The lifetime learning credit applies to qualified tuition and related expenses associated with educational courses taken to acquire or improve job skills.
Students who do not qualify for either the Hope or Lifetime Learning credits because of their income level may be eligible to take this deduction.
Those most common to military taxpayers are the Hope and Lifetime Learning Credit, (50) Adoption Credit, (51) Additional Child Tax Credit, (52) and the Earned Income Credit.
This provision doubles the Hope Credit dollar amount to a maximum of $3,000 and doubles the Lifetime Learning Credit to 40 percent, allowing a maximum of $4,000.
In 2002, those eligible for the Lifetime Learning credit could take a federal income tax credit of up to 20 percent for the first $5,000 and 20 percent of the first $10,000 of tuition expenses and required fees paid out of pocket thereafter, making the maximum credits $1,000 and $2,000, respectively.
The deductibility of health insurance premiums to small business owners is discussed, as are education expenses and the lifetime learning credit.
A taxpayer may use other education incentives including the Hope or Lifetime Learning credit for a taxable year and exclude from income amounts distributed from QTPs on behalf of the same student as long as the distribution is not used for the same qualifying expenses.
Prior to 2001, a taxpayer could make a contribution to an Education IRA or claim the HOPE or Lifetime Learning credit but couldn't do both.

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