Table of Contents
Income limits increased. The amount of your lifetime learning credit for 2008 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim a credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return). This is an increase from the 2007 limits of $47,000 and $57,000 ($94,000 and $114,000 if filing a joint return). See Effect of the Amount of Your Income on the Amount of Your Credit , later, for more information.
Students in Midwestern disaster areas. The following rules apply only to students attending an eligible educational institution in the Midwestern disaster areas in the states of Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin. See Table 3-2 near the end of this chapter for a list of counties.
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The lifetime learning credit rate for students in Midwestern disaster areas is 40%.
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The definition of qualified education expenses for the lifetime learning credit is expanded for students in Midwestern disaster areas. See Students in Midwestern disaster areas , under Qualified Education Expenses, later in this chapter for more information.
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 Hope credit and the lifetime learning credit, also referred to as education credits. This chapter discusses the lifetime learning credit. The Hope credit is discussed in chapter 2.
This chapter explains:
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Who can claim the lifetime learning credit,
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What expenses qualify for the credit,
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Who is an eligible student,
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Who can claim a dependent's expenses,
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How to figure the credit,
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How to claim the credit, and
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When the credit must be repaid.
Table 3-1.Comparison of Education Credits
Lifetime Learning Credit | Hope Credit |
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Up to $2,000 credit ($4,000 if a student in a Midwestern disaster area) per return | Up to $1,800 credit ($3,600 if a student in a Midwestern disaster area) per eligible student |
Available for all years of postsecondary education and for courses to acquire or improve job skills | Available ONLY until the first 2 years of post- secondary education are completed |
Available for an unlimited number of years | Available ONLY for 2 years per eligible student |
Student does not need to be pursuing a degree or other recognized education credential | Student must be pursuing an undergraduate degree or other recognized education credential |
Available for one or more courses | Student must be enrolled at least half time for at least one academic period beginning during the year |
Felony drug conviction rule does not apply | No felony drug conviction on student's record |
The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return.
Generally, you can claim the lifetime learning credit if all three of the following requirements are met.
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You pay qualified education expenses of higher education.
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You pay the education expenses for an eligible student.
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The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.
Note.
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 on this page. “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, on the next page, helpful in determining if you can claim a lifetime learning credit on your tax return.
You cannot claim the lifetime learning credit for 2008 if any of the following apply.
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Your filing status is married filing separately.
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You are listed as a dependent in the Exemptions section on another person's tax return (such as your parents'). See Who Can Claim a Dependent's Expenses , later.
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Your modified adjusted gross income (MAGI) is $58,000 or more ($116,000 or more in the case of a joint return). MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit .
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You (or your spouse) were a nonresident alien for any part of 2008 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.
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You claim the Hope Credit or a tuition and fees deduction for the same student in 2008.
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 2008 for an academic period beginning in 2008 or in the first 3 months of 2009.
For example, if you paid $1,500 in December 2008 for qualified tuition for the Spring 2009 semester beginning in January 2009, you may be able to use that $1,500 in figuring your 2008 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.
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Books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.
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For a special needs student, expenses that are necessary for that person's enrollment or attendance at an eligible educational institution.
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For a student who is at least a half-time student, the reasonable costs of room and board, but only to the extent that the costs are not more than the greater of the following two amounts.
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The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.
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The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
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You cannot do any of the following:
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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.
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Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student.
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Claim a lifetime learning credit and a Hope credit based on the same qualified education expenses.
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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 Hope and Lifetime Learning Credits in chapter 7 (Coverdell ESA) and chapter 8 (QTP).
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Claim a credit based on qualified education expenses paid with a tax-free scholarship, grant, or employer-provided educational assistance. See Adjustments to Qualified Education Expenses , later.
If you pay qualified education expenses with certain tax-free funds, you cannot claim a credit for those amounts. You must reduce the qualified education expenses by the amount of any tax-free educational assistance and refund(s) you received.
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The tax-free part of scholarships and fellowships (see chapter 1),
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Pell grants (see chapter 1),
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Employer-provided educational assistance (see chapter 11),
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Veterans' educational assistance (see chapter 1), and
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Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance.
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Payment for services, such as wages,
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A loan,
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A gift,
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An inheritance, or
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A withdrawal from the student's personal savings.
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The use of the money is restricted to costs of attendance (such as room and board) other than qualified education expenses.
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The use of the money is not restricted and is used to pay education expenses that are not qualified (such as room and board).
Qualified education expenses do not include amounts paid for:
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Insurance,
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Medical expenses (including student health fees),
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Room and board (but see Students in Midwestern disaster areas under Qualified Education Expenses, earlier, for an exception),
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Transportation, or
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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 for a 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 cannot claim the credit. |
do not 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 cannot claim the credit based on this dependent's expenses. |
Example.
In 2008, 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 as a gift from his grandmother and, in turn, paying his qualified education expenses himself.
Unless an exemption for Todd is claimed on someone else's 2008 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 2008 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 cannot 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 2008 is $2,000 (20% × $10,000). However, that amount may be reduced based on your modified adjusted gross income (MAGI). See Effect of the Amount of Your Income on the Amount of Your Credit on this page.
Example.
Bruce and Toni Harper are married and file a joint tax return. For 2008, their MAGI is $75,000. Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. The college is not in a Midwestern disaster area. She already has a bachelor's degree in history and wants to become a nurse. In August 2008, Toni paid $6,000 of qualified education expenses for her Fall 2008 semester. Bruce and Toni can claim a $1,200 (20% × $6,000) lifetime learning credit on their 2008 joint tax return.
The amount of your lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim a lifetime learning credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return).
Worksheet 3-1.MAGI for the Lifetime Learning Credit
1. | Enter your adjusted gross income (Form 1040, line 38) |
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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 |
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7. | Add the amounts on lines 1 and 6. This is your modified adjusted gross income. Enter this amount on Form 8863, line 9 |
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Example.
You are filing a joint return with a MAGI of $106,000. In 2008, 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 of the fraction is $116,000 (the upper limit for those filing a joint return) minus your MAGI. The denominator is $20,000, the range of incomes for the phaseout ($96,000 to $116,000). The result is the amount of your phased out (reduced) lifetime learning credit ($660).
$1,320 | × | $116,000 − $106,000 $20,000 |
= | $660 |
You claim the lifetime learning credit by completing Parts II and III of Form 8863 and submitting it with your Form 1040 or 1040A. Enter the credit on Form 1040, line 50, or Form 1040A, line 31. A filled-in Form 8863 is shown at the end of this chapter.
If, after you file your 2008 tax return, you or someone else receives tax-free educational assistance for, or a refund of, an expense you used to figure a lifetime learning credit on that return, you may have to repay all or part of the credit. You must refigure your lifetime learning credit for 2008 as if the assistance or refund was received in 2008. Subtract the amount of the refigured credit from the amount of the credit you claimed. The result is the amount you must repay. You add the repayment (recapture) to your tax liability for the year in which you receive the assistance or refund. See the instructions for your tax return for that year to find out how to report the recapture amount. Your original 2008 tax return does not change.
Example.
You paid $9,300 tuition and fees in December 2008, and your child began college in January 2009. You filed your 2008 tax return on February 15, 2009, and claimed a lifetime learning credit of $1,860. After you filed your return, your child dropped two courses and you received a refund of $2,900. You must refigure your 2008 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. The refigured credit is $1,280. Include the difference of $580 in the total on the “Tax” line of your 2009 Form 1040 or 1040A.
Judy Green, a single taxpayer, is taking courses at a community college (not in a Midwestern disaster area) to be recertified to teach in public schools. Her MAGI is $27,000. Her tax, before credits, is $2,200. In July 2008 she pays $700 for the Summer 2008 semester; in August 2008 she pays $1,900 for the Fall 2008 semester; and in December 2008 she pays another $1,900 for the Spring semester beginning January 2009. Judy and the college meet all the requirements for the lifetime learning credit. She can use all of the $4,500 tuition she paid in 2008 when figuring her credit for her 2008 tax return. She figures her credit as shown on the filled-in Form 8863 on the next page.
Note.
In Appendix A at the end of this publication, there is an example illustrating the use of Form 8863 when both the Hope credit and the lifetime learning credit are claimed on the same tax return.
Table 3-2. Table 1 from Publication 4492-B
Students attending an eligible educational institution in the counties listed below may qualify for the special Midwestern disaster area rules for the Hope or lifetime learning credit or the tuition and fees deduction.
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Applicable Disaster Date* |
State | Affected Counties—Midwestern Disaster Areas |
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05/02/2008 | Arkansas | Arkansas, Benton, Cleburne, Conway, Crittenden, Grant, Lonoke, Mississippi, Phillips, Pulaski, Saline, and Van Buren. |
06/01/2008 | Illinois | Adams, Calhoun, Clark, Coles, Crawford, Cumberland, Douglas, Edgar, Hancock, Henderson, Jasper, Jersey, Lake, Lawrence, Mercer, Rock Island, Whiteside, and Winnebago. |
06/06/2008 | Indiana | Adams, Bartholomew, Brown, Clay, Daviess, Dearborn, Decatur, Gibson, Grant, Greene, Hamilton, Hancock, Hendricks, Henry, Huntington, Jackson, Jefferson, Jennings, Johnson, Knox, Lawrence, Madison, Marion, Monroe, Morgan, Owen, Parke, Pike, Posey, Putnam, Randolph, Ripley, Rush, Shelby, Sullivan, Tippecanoe, Vermillion, Vigo, Washington, and Wayne. |
05/25/2008 | Iowa | Adair, Adams, Allamakee, Appanoose, Audubon, Benton, Black Hawk, Boone, Bremer, Buchanan, Butler, Cass, Cedar, Cerro Gordo, Chickasaw, Clarke, Clayton, Clinton, Crawford, Dallas, Davis, Decatur, Delaware, Des Moines, Dubuque, Fayette, Floyd, Franklin, Fremont, Greene, Grundy, Guthrie, Hamilton, Hancock, Hardin, Harrison, Henry, Howard, Humboldt, Iowa, Jackson, Jasper, Johnson, Jones, Keokuk, Kossuth, Lee, Linn, Louisa, Lucas, Madison, Mahaska, Marion, Marshall, Mills, Mitchell, Monona, Monroe, Montgomery, Muscatine, Page, Polk, Pottawattamie, Poweshiek, Ringgold, Scott, Story, Tama, Union, Van Buren, Wapello, Warren, Washington, Webster, Winnebago, Winneshiek, Worth, and Wright. |
05/10/2008 | Missouri | Barry, Jasper, and Newton. |
06/01/2008 | Missouri | Adair, Andrew, Callaway, Cass, Chariton, Clark, Gentry, Greene, Harrison, Holt, Johnson, Lewis, Lincoln, Linn, Livingston, Macon, Marion, Monroe, Nodaway, Pike, Putnam, Ralls, St. Charles, Stone, Taney, Vernon, and Webster. |
05/22/2008 | Nebraska | Buffalo, Butler, Colfax, Custer, Dawson, Douglas, Gage, Hamilton, Holt, Jefferson, Kearney, Lancaster, Platte, Richardson, Sarpy, and Saunders. |
06/05/2008 | Wisconsin | Adams, Calumet, Crawford, Columbia, Dane, Dodge, Fond du Lac, Grant, Green, Green Lake, Iowa, Jefferson, Juneau, Kenosha, La Crosse, Manitowoc, Marquette, Milwaukee, Monroe, Ozaukee, Racine, Richland, Rock, Sauk, Sheboygan, Vernon, Walworth, Washington, Waukesha, and Winnebago. |
* In some cases, the date will be later due to the continuation of the severe storms, tornadoes, or flooding that began on the above date. For more details, go to www.fema.gov |
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