What is the lifetime learning credit?

The Lifetime Learning Credit is a nonrefundable tax credit available to taxpayers for qualified education expenses paid for eligible students. The credit can be claimed for an unlimited number of years and is designed to help offset the costs of higher education, including courses taken to acquire or improve job skills. Here are the key details:

1. Amount of the Credit:
   • The credit is 20% of the first $10,000 of qualified education expenses, resulting in a maximum credit of $2,000 per tax return per year.
2. Eligibility:
   • The credit can be claimed for qualified education expenses paid for the taxpayer, the taxpayer's spouse, or a dependent claimed on the taxpayer's tax return.
   • The student does not need to be pursuing a degree; the credit is available for both degree and non-degree courses.
   • The credit is available for an unlimited number of years.
3. Qualified Education Expenses:
   • These include tuition and fees required for enrollment or attendance at an eligible educational institution.
   • Expenses for courses involving sports, games, or hobbies are generally not eligible unless they are part of the student's degree program.
   • Nonacademic fees such as student activity fees, athletic fees, and insurance expenses are not included.
4. Income Limitations:
   • The credit is phased out for taxpayers with a Modified Adjusted Gross Income (MAGI) between $80,000 and $90,000 ($160,000 and $180,000 for joint filers).
   • Taxpayers with a MAGI of $90,000 or more ($180,000 or more for joint filers) are not eligible for the credit.
5. Coordination with Other Credits:
   • A taxpayer cannot claim both the Lifetime Learning Credit and the American Opportunity Tax Credit for the same student in the same tax year.
   • If a student is claimed as a dependent by another taxpayer, only that taxpayer can claim the credit for the student's qualified education expenses.
6. Special Rules:
   • Qualified education expenses must be reduced by the amount of any tax-free educational assistance received, such as scholarships or employer-provided educational assistance.
   • Prepaid expenses for an academic period beginning in the first three months of the following year can be treated as paid in the current year.

In summary, the Lifetime Learning Credit provides a valuable tax benefit for individuals pursuing higher education or job-related skills, with specific eligibility criteria and limitations based on income and coordination with other education credits.

Sources:
Instructions for Form 8863 (2023)
Publication 17 (2023)
§ 25A. American Opportunity and Lifetime Learning credits
Publication 970 (2023)
§ 1.25A-4. Lifetime Learning Credit.
§ 1.25A-1. Calculation of education tax credit and general eligibility requirements.