Table of Contents
- Can You Claim the Credit?
- What Expenses Qualify?
- Who Is an Eligible Student?
- Who Can Claim a Dependent's Expenses?
- Figuring the Credit
- Claiming the Credit
For 2015, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the American opportunity credit and the lifetime learning credit. This chapter discusses the lifetime learning credit. The American opportunity credit is discussed in chapter 2 .
This chapter explains:
Who can claim the lifetime learning credit,
What expenses qualify for the credit,
Who is an eligible student,
Who can claim a dependent's expenses,
How to figure the credit,
How to claim the credit, and
When the credit must be repaid.
Generally, you can claim the lifetime learning credit if all three of the following requirements are met.
You pay qualified education expenses of higher education.
You pay the education expenses for an eligible student.
The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
|Maximum credit||Up to $2,000 credit per return|
|Limit on modified adjusted gross income (MAGI)||$130,000 if married filling jointly;
$65,000 if single, head of household, or qualifying widow(er)
|Refundable or nonrefundable||Nonrefundable—credit limited to the amount of tax you must pay on your taxable income|
|Number of years of postsecondary education||Available for all years of postsecondary education and for courses to acquire or improve job skills|
|Number of tax years credit available||Available for an unlimited number of tax years|
|Type of program required||Student doesn't need to be pursuing a program leading to a degree or other recognized education credential|
|Number of courses||Available for one or more courses|
|Felony drug conviction||Felony drug convictions don't make the student ineligible|
|Qualified expenses||Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment)|
|Payments for academic periods||Payments made in 2015 for academic periods beginning in 2015 or beginning in the first 3 months of 2016|
Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you.
“Qualified education expenses” are defined later under Qualified Education Expenses . “Eligible students” are defined later under Who Is an Eligible Student . A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses .
You may find Figure 3-1 helpful in determining if you can claim a lifetime learning credit on your tax return.
You can't claim the lifetime learning credit for 2015 if any of the following apply.
Your filing status is married filing separately.
You are listed as a dependent on another person's tax return (such as your parents'). See Who Can Claim a Dependent's Expenses , later.
Your modified adjusted gross income (MAGI) is $65,000 or more ($130,000 or more if filing married filing jointly). MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit .
You (or your spouse) were a nonresident alien for any part of 2015 and the nonresident alien didn't elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Pub. 519.
The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, the credit is allowed for qualified education expenses paid in 2015 for an academic period beginning in 2015 or in the first 3 months of 2016.
For example, if you paid $1,500 in December 2015 for qualified tuition for the spring 2016 semester beginning in January 2016, you may be able to use that $1,500 in figuring your 2015 credit.
For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills.
In the following examples, assume that each student is an eligible student at an eligible educational institution.
You can't do any of the following.
Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses.
Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student.
Claim a lifetime learning credit for any student and use any of that student's expenses in figuring your American opportunity credit.
Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7 and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8.
Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. See Adjustments to Qualified Education Expenses below.
For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. The result is the amount of adjusted qualified education expenses for each student.
The tax-free part of scholarships and fellowship grants (see Tax-Free Scholarships and Fellowship Grants in chapter 1);
The tax-free part of Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1);
Employer-provided educational assistance (see chapter 11 );
Veterans' educational assistance (see Veterans' Benefits in chapter 1); and
Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.
Generally, any scholarship or fellowship grant is treated as tax free. However, a scholarship or fellowship grant isn't treated as tax free to the extent the student includes it in gross income (the student may or may not be required to file a tax return for the year the scholarship or fellowship grant is received) and either of the following is true.
The scholarship or fellowship grant (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1.
The scholarship or fellowship grant (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1.
Payment for services, such as wages;
An inheritance; or
A withdrawal from the student's personal savings.
The use of the money is restricted, by the terms of the scholarship or fellowship grant, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1.
The use of the money isn't restricted.
Example 1—No scholarship.
Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. Her adjusted gross income (AGI) and her MAGI, for purposes of the credit, are $27,400. Judy claims the standard deduction of $6,300 and personal exemption of $4,000, resulting in taxable income of $17,100 and a tax liability before credits of $2,108. Judy claims no credits other than the lifetime learning credit. In July 2015, she paid $700 for the summer 2015 semester; in August 2015, she paid $1,900 for the fall 2015 semester; and in December 2015, she paid another $1,900 for the spring semester beginning in January 2016. Judy and the college meet all requirements for the lifetime learning credit. She can use all of the $4,500 tuition she paid in 2015 when figuring her 2015 lifetime learning credit. She claims a $900 lifetime learning credit and her tax liability after credits is $1,208.
Example 2—Scholarship excluded from income.
The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. If Judy excludes the scholarship from income, she will be deemed (for purposes of figuring her education credit) to have applied the scholarship to pay for tuition, required fees, and course materials. Only $3,000 of the $4,500 tuition she paid in 2015 could be used when figuring her 2015 lifetime learning credit. Her lifetime learning credit would be reduced to $600 and her tax liability after credits would be $1,508.
Example 3—Scholarship included in income.
The facts are the same as in Example 2—Scholarship excluded from income. If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have applied the entire scholarship to pay for room and board. Judy's AGI and MAGI would increase to $28,900, her taxable income would be $18,600, and her tax liability before credits would be $2,333. She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. Judy could claim a $900 lifetime learning credit and her tax liability after credits would be $1,433.
Example 4—Scholarship applied by the postsecondary school to tuition.
The facts are the same as in Example 3—Scholarship included in income, except the $1,500 scholarship is paid directly to the public community college. The fact that the public community college applies the scholarship to Judy's tuition and related fees doesn't prevent Judy from including the $1,500 scholarship in income. As in Example 3, by doing so, she will be deemed to have applied the entire scholarship to pay for room and board. Judy could claim the $900 lifetime learning credit and her tax liability after credits would be $1,433.
Whether you will benefit from applying a scholarship or fellowship grant to nonqualified expenses will depend on the amount of the student's qualified education expenses, the amount of the scholarship or fellowship grant, and whether the scholarship or fellowship grant may (by its terms) be used for nonqualified expenses. Any benefit will also depend on the student's federal and state marginal tax rates as well as any federal and state tax credits the student claims. Before deciding, look at the total amount of your federal and state tax refunds or taxes owed and, if the student is your dependent, the student's tax refunds or taxes owed. For example, if you are the student and you also claim the earned income credit, choosing to apply a scholarship or fellowship grant to nonqualified expenses by including the amount in your income may not benefit you if the decrease to your earned income credit as a result of including the scholarship or fellowship grant in income is more than the increase to your lifetime learning credit as a result of including this amount in income.
Qualified education expenses don't include amounts paid for:
Medical expenses (including student health fees);
Room and board;
Similar personal, living, or family expenses.
This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.
For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier).
If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year.
For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c.
|IF you...||THEN only...|
|claim an exemption on your tax return for a dependent who is an eligible student||you can claim the lifetime learning credit based on that dependent's expenses. The dependent can't claim the credit.|
|don't claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption)||the dependent can claim the lifetime learning credit. You can't claim the credit based on this dependent's expenses.|
In 2015, Ms. Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself.
Unless an exemption for Todd is claimed on someone else's 2015 tax return, only Todd can use the payment to claim a lifetime learning credit.
If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2015 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. If anyone else claims an exemption for Todd, Todd can't claim a lifetime learning credit.
The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. The maximum amount of lifetime learning credit you can claim for 2015 is $2,000 (20% × $10,000). However, that amount may be reduced based on your MAGI. See Effect of the Amount of Your Income on the Amount of Your Credit , later.
Bruce and Toni Harper are married and file a joint tax return. For 2015, their MAGI is $75,000. Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. She already has a bachelor's degree in history and wants to become a nurse. In August 2015, Toni paid $5,000 of qualified education expenses for her fall 2015 semester. Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2015 joint tax return.
The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $55,000 and $65,000 ($110,000 and $130,000 if you file a joint return). You can't claim a lifetime learning credit if your MAGI is $65,000 or more ($130,000 or more if you file a joint return).
|1.||Enter your adjusted gross income
(Form 1040, line 38)
|2.||Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)||2.|
|3.||Enter your foreign housing deduction (Form 2555, line 50)||3.|
|4.||Enter the amount of income from Puerto Rico you are excluding||4.|
|5.||Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)||5.|
|6.||Add the amounts on
lines 2, 3, 4, and 5
|7.||Add the amounts on lines 1 and 6.
This is your modified adjusted
gross income. Enter this amount
on Form 8863, line 14
You are filing a joint return with a MAGI of $112,000. In 2015, you paid $6,600 of qualified education expenses.
You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). The result is a $1,320 (20% x $6,600) tentative credit.
Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. The numerator (top part) of the fraction is $130,000 (the upper limit for those filing a joint return) minus your MAGI. The denominator (bottom part) is $20,000, the range of incomes for the phaseout ($110,000 to $130,000). The result is the amount of your phased out (reduced) lifetime learning credit ($1,188).
|$1,320||×||$130,000 − $112,000||=||$1,188|
You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Enter the credit on Form 1040, line 50, or Form 1040A, line 33.
In Appendix A at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return.
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