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Lifetime Learning Credit Tax Deduction

Stephen Fishman
Tax expert and contributor MileIQ

You often hear about tax deductions, but a tax credit is even better. A tax credit is a dollar-for-dollar reduction in the amount of tax you have to pay. Thus, a $2,000 credit will reduce your taxes by $2,000.

There are many different types of tax credits. More specifically, one of the best credits is the Lifetime Learning Credit. This credit aims to help people pay for postsecondary education courses or programs. If you qualify, the credit can save you up to $2,000 per year on your income taxes.

Who qualifies for the lifetime learning credit?

To claim the Lifetime Learning Credit, you must pay postsecondary education expenses for yourself, your spouse, or a dependent you list on your tax return. These are expenses for undergraduate, graduate and professional degree courses.

You don't need to be pursuing a degree or other education credential. You only need to take a single course to qualify. And you don't need to be a full-time student.

Such courses may be taken at any accredited college, university, trade school, or other post-secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education. Eligible schools include not just non-profit colleges and universities, but for-profit trade schools and colleges as well. If you're not sure whether attendance at a particular educational institution qualifies you for the credit, ask them (the financial aid office should know).

The credit aims to help low- and moderate-income taxpayers. Thus, the credit phases out when your income exceeds certain levels.

Female college students studying on floor in dorm room

Can I claim the lifetime learning credit?

To claim the full credit, your adjusted gross income (AGI) must be $66,000 or less if you're single. That number is $132,000 or less if you are married and filing jointly. If your AGI is between $57,000 and $67,000 (between $114,000 but less than $134,000 for married filing jointly), you receive a reduced credit.

If your AGI is over $67,000 ($134,000 for joint filers), you cannot claim the credit.

Also, you can't claim the credit if you're claimed as a dependent on another person's tax return, such as your parent's return.

If you claim the Lifetime Learning Credit for yourself or another student, you can't also claim any other education credits for the same student that year. For example, you can't also claim the American Opportunity Credit.

If you qualify for both credits, you should determine which is worth more and claim that one for the year. The American Opportunity Credit can be as much as $2,500, but it is available only for a maximum of four years of postsecondary education per student.

Moreover, the opportunity credit is only available for students attending school at least half-time and seeking a degree or other credential.

If you pay the educational expenses for more than one student in the same year, you may claim the Hope Tax Credit for one student and the Lifetime Learning Credit for another student

The IRS has an interactive app you can use to see if you qualify for the credit.

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What is the amount of the lifetime learning credit?

The Lifetime Learning Credit is equal to 20 percent of the qualified education expenses you incur during the year, up to a maximum $2,000 per year. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying expenses.

"Qualified education expenses" include tuition and fees required for enrollment at the educational institution. Other qualified expenses include books, supplies, and equipment that must be paid to the educational institution as a condition of enrollment.

You can claim the credit for qualified expenses you pay out of your own pocket, or that you pay with school loans. Additionally, you use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid.

The following types of expenses are not qualified education expenses and do not count toward the credit:

  • The cost of courses involving sports, games, hobbies, or nondegree courses. Unless it is part of a degree program or helps you acquire or improve job skills
  • Non-academic fees such as student activity fees, athletic fees, insurance expenses, or other expenses unrelated to the academic course of instruction
  • Personal expenses
  • Room and board
  • Transportation, and
  • Medical expenses (including student health fees)
An engineering tutor showing his students how to use some electronic equipment

What should I know about the Lifetime Learning Credit?

A maximum of $2,000 Lifetime Learning Credit can be claimed for each tax return, no matter how many people covered by the return attended college or other postsecondary education. For example, if you and your spouse (who file a joint tax return) are both attending college, you may both claim a total $2,000 credit on your joint return.

The Lifetime Learning Credit is "nonrefundable." Therefore, you can use the credit to pay any tax you owe, but you won't receive any of the credit back as a refund. If you owe no income tax, you get no credit. Your credit cannot exceed the income tax you owe for the year.

There is no limit on the number of years you can claim the credit.

Example: Bernie is a self-employed real estate appraiser. He takes a course at his local college in advanced real estate appraisal techniques. He pays $1,000 in tuition and fees for the course.

Bernie is single and his income for the year is $55,000. The course qualifies for the full Lifetime Learning Credit because it helps him improve his job skills and his income is below the $57,000 cap. He is entitled to claim a credit of 20% x $1,000 = $1,000 on his income taxes.

How do I claim the lifetime learning credit?

You claim the Lifetime Learning Credit by completing IRS Form 8863, Education Credits. The Form 8863 Instructions have a worksheet you can use to figure your credit. Upon completion, attach it to your income tax return.

Or, if you use tax software to do your return, it will calculate it for you. You must file IRS Form 1040 to claim the credit. Thus, you can't file the shorter Form 1040EZ.

You should receive a Form 1098-T, Tuition Statement, from your school by January 31 each year. The information on this statement will help you figure your credit. The form will have an amount in either box 1 or 2 showing the amounts received or billed during the year by the educational institution.

You need not file Form 1098-T with your tax return. It is the responsibility of the educational institution to send a copy to the IRS.

For more information on the Lifetime Learning Credit, see IRS Publication 970, Tax Benefits for Education.

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