Get to Know: The Lifetime Learning Credit

The decision to take a class or go back to school is a praiseworthy one. Whether or not you’re employed full-time, the rigors of most college-level courses can challenge you not only intellectually, but also simply put a lot of stress on your schedule.

Maybe you have children, maybe you have a job, and maybe you have other commitments on your plate. Whatever the situation may be, you deserve all the support you can get.

You deserve even more support because education is expensive! You may find yourself saving for months just to register for a single night class, or taking out student loans to pay for a semester.

Fortunately, the IRS has a tax credit for that. Actually, the IRS has a couple of them. At Edge Financial, we don’t think that your budget should prevent you from pursuing knowledge. If you’re considering post-secondary (post-high school) education, we want you to know about every possible credit or deduction you may have at your disposal.

We’re here to walk you through the Lifetime Learning Credit.

In this article, we’ll be describing the Lifetime Learning Credit (LLC) and how it differs from the AOTC, explaining who can qualify for the LLC, and offer a few extra details you should keep in mind.

What is the Lifetime Learning Credit?

Here’s a basic description of the LLC, courtesy of the IRS:

“The lifetime learning credit (LLC) is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit.”

So, the Lifetime Learning Credit is a tax credit that can help you cover tuition and other school expenses associated with your study at an educational institution. You can be pursuing a degree, but you don’t have to be—which is there’s no cap on how many times you can use this credit.

As a reminder, tax credits work differently compared to tax deductions. Credits reduce your total tax bill, while deductions only reduce your taxable income.

Lifetime Learning Credit vs. AOTC

The LLC isn’t the only tax credit out there for those taxpayers pursuing their education. The American Opportunity Tax Credit (AOTC) can also save you money on education-related expenses, but it differs in some key ways.

We’ve written about the AOTC before, and we recommend you check out that article separately. But aside from a few basic differences—like value of the tax credit or qualifying income thresholds—here are the major differences between the LLC and the AOTC.

  1. The AOTC can only be used for up to four years of post-secondary school, while the LLC can be used an unlimited number of times.
  2. The AOTC can only be used if the student hasn’t already completed four years of post-secondary education, while that limit does not exist for the LLC.
  3. The AOTC can only be used for classes in the pursuit of a degree (or education credential), while the LLC can be used for classes not related to a degree path.
  4. To qualify for the AOTC, students must be enrolled at least half-time, while students only need one class to qualify for the LLC.
  5. The AOTC can be used on tuition, fees, and required materials, while the LLC can only be used for tuition and fees.

If you’re looking for a pattern, here’s one: The American Opportunity Tax Credit is more restrictive and exclusively applies to your first four years of college or a qualified education program. After that, you can’t use the AOTC. The LLC applies to any tuition and fees only, but it’s a tax credit you can use at any point.

Oh, and a big reminder. You can actually use both credits on the same tax return, just not on the same expenses. As the IRS puts it, “No Double Benefits Allowed.”

Who qualifies for the LLC?

To qualify for the Lifetime Learning Credit, you’ll need to check these three boxes:

  1. You, your dependent, or a third party pay qualified higher education expenses.
  2. You, your dependent, or a third party pay these expenses for an eligible student enrolled at an eligible educational institution.
  3. That student is yourself, your spouse, or a dependent as listed on your tax return.

If you’re wondering what we mean by an “eligible student,” here’s the long and the short of it.

You must be enrolled or taking higher education courses to get a degree, some other recognized education credential, or with job skills in mind. And you need to be enrolled for at least one academic period (semesters, trimesters, quarters, summer sessions, etc.) that started during the tax year.

Important Totals & Numbers to Remember

Like every credit, the LLC comes with limitations. The tax credit is valued at up to 20% of the first $10,000 of qualified education expenses, and caps out at $2,000 per tax return. But since it’s a nonrefundable tax credit, it won’t push your tax obligation below zero, so you’ll get money off your tax bill but you won’t get any extra back.

Additionally, there are income limits for the Lifetime Learning Credit that affect how much of the credit you can take advantage of—and if you can use it at all.

  • You can’t claim the credit if your MAGI (Modified Adjusted Gross Income) is $68,000 or more, or $136,000 or more if you file jointly
  • You can claim part of the credit if your MAGI is between $58,000 and $68,000, or between $116,000 and $136,000 if you file jointly
  • You can claim the full credit if your MAGI is below $58,000, or below $116,000 if you file jointly 

Is the Lifetime Learning Credit right for your tax return?

While the LLC may not be able to completely eliminate costs of your education, it can seriously help to defray them.

We hope now that you have an idea of how this tax credit works, and who can use it, you’ll be able to act accordingly, save some money, and get started on your tax return! If you have any more questions, we’re always here to answer them and expertly prepare your taxes for you. Are you ready to get started?

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