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How Lifetime Learning Tax Credits Work


Who Can Claim the Lifetime Learning Tax Credit?

The eligibility requirements for the Lifetime Learning Tax Credit are published by the Internal Revenue Service (IRS). Since the IRS has a habit of making things more complicated than necessary, we'll do our best to explain it simply.

To be eligible for the credit, you need to have paid "qualified educational expenses" at an "eligible postsecondary institution." This is easier than it sounds. Qualified educational expenses are things like tuition and any other required costs or fees like books or equipment. The only catch: If the expense isn't required for enrollment, it doesn't qualify [source: IRS].

As for "eligible postsecondary institutions," just about every undergraduate, graduate, professional or vocational school in the country qualifies [source: IRS]. That includes all public, private and nonprofit institutions that participate in a student aid program administered by the U.S. Department of Education. If you have questions, ask your school if it qualifies.

The nice part is that the tax credit is calculated on a "per family" basis, which means spouses and dependents can claim educational expenses on the same tax return [source: IRS]. For example, if both you and your dependent son are taking classes during the same academic year, you can claim a tax credit against the total amount of both your expenses.

There's a catch, of course. You can only claim the Lifetime Learning Tax Credit if you earn less than $58,000 a year as an individual or less than $116,000 if married and filing jointly. You can't claim the credit if you're married and filing separately, no matter how little you earn [source: IRS].

The income amount is based on something called the modified adjusted gross income (MAGI). This sounds scarier than it is. For most taxpayers, the MAGI is exactly the same as the adjusted gross income (AGI), the amount you've earned before subtracting any standard or itemized deductions. For a small percentage of taxpayers, the MAGI is "modified" to include extra income or special deductions like foreign income, foreign-housing deductions, IRA contribution deductions and higher-education deductions [source: Investopedia].

Here comes the fun part: filling out those dreadful IRS forms. We'll walk you through the process of claiming the Lifetime Learning Tax Credit on the next page.


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