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Free file gov Index A Assistance (see Help) C Casualty and theft losses, Casualty and Theft Losses Clean-up costs, Demolition and Clean-up Costs Copy of tax return, request for, Request for copy of tax return. Free file gov Credits: Employee retention, Employee Retention Credit D Demolition costs, Demolition and Clean-up Costs Depreciation: Qualified recovery assistance property, Qualified recovery assistance property. Free file gov Special allowance, Special Depreciation Allowance Disaster area: May 4, 2007 storms and tornadoes, Kansas Disaster Area Distributions: Home purchase or construction, Repayment of Qualified Distributions for the Purchase or Construction of a Main Home Qualified recovery assistance, Qualified recovery assistance distribution. Free file gov Repayment of, Repayment of Qualified Recovery Assistance Distributions Taxation of, Taxation of Qualified Recovery Assistance Distributions E Eligible retirement plan, Eligible retirement plan. Free file gov Employee retention credit, Employee Retention Credit F Free tax services, How To Get Tax Help H Help: How to get, How To Get Tax Help Phone number, How To Get Tax Help Special IRS assistance, How To Get Tax Help Website, How To Get Tax Help I Involuntary conversion (see Replacement period for nonrecognition of gain) IRAs and other retirement plans, IRAs and Other Retirement Plans K Kansas disaster area, Kansas Disaster Area M More information (see Tax help) N Net operating losses, Net Operating Losses P Publications (see Tax help) Q Qualified recovery assistance distribution, Qualified recovery assistance distribution. Free file gov Qualified recovery assistance loss, Qualified recovery assistance loss. Free file gov R Replacement period for nonrecognition of gain, Replacement Period for Nonrecognition of Gain Retirement plan, eligible, Eligible retirement plan. Free file gov Retirement plans, IRAs and Other Retirement Plans S Section 179 deduction, Increased Section 179 Deduction Storms and tornadoes, Storms and Tornadoes T Tax help, How To Get Tax Help (see Help) Tax return: Request for copy, Request for copy of tax return. Free file gov Request for transcript, Request for transcript of tax return. Free file gov Taxpayer Advocate, Contacting your Taxpayer Advocate. Free file gov Theft losses, Casualty and Theft Losses Transcript of tax return, request for, Request for transcript of tax return. Free file gov TTY/TDD information, How To Get Tax Help Prev  Up     Home   More Online Publications
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Free file gov 3. Free file gov   Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Free file gov They are the American opportunity credit and the lifetime learning credit. Free file gov This chapter discusses the lifetime learning credit. Free file gov The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . Free file gov This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Free file gov What is the tax benefit of the lifetime learning credit. Free file gov   For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. Free file gov There is no limit on the number of years the lifetime learning credit can be claimed for each student. Free file gov   A tax credit reduces the amount of income tax you may have to pay. Free file gov Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Free file gov The lifetime learning credit is a nonrefundable credit. Free file gov This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. Free file gov   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. Free file gov Can you claim more than one education credit this year. Free file gov   For each student, you can elect for any year only one of the credits. Free file gov For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. Free file gov   If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. Free file gov   If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. Free file gov This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Free file gov Differences between the American opportunity and lifetime learning credits. Free file gov   There are several differences between these two credits. Free file gov For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. Free file gov However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Free file gov The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Free file gov Overview of the lifetime learning credit. Free file gov   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. Free file gov The details are discussed in this chapter. Free file gov Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. Free file gov Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. Free file gov You pay qualified education expenses of higher education. Free file gov You pay the education expenses for an eligible student. Free file gov The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Free file gov Table 3-1. Free file gov Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. Free file gov 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. Free file gov “Qualified education expenses” are defined later under Qualified Education Expenses . Free file gov “Eligible students” are defined later under Who Is an Eligible Student . Free file gov A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Free file gov You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. Free file gov Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. Free file gov Your filing status is married filing separately. Free file gov You are listed as a dependent on another person's tax return (such as your parents'). Free file gov See Who Can Claim a Dependent's Expenses , later. Free file gov Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). Free file gov MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Free file gov You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Free file gov More information on nonresident aliens can be found in Publication 519. Free file gov You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. Free file gov What Expenses Qualify 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. Free file gov Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. Free file gov For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. Free file gov Academic period. Free file gov   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Free file gov In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Free file gov Paid with borrowed funds. Free file gov   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Free file gov You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. Free file gov Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Free file gov Student withdraws from class(es). Free file gov   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. Free file gov Qualified Education Expenses 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. Free file gov The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. Free file gov Eligible educational institution. Free file gov   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Free file gov S. Free file gov Department of Education. Free file gov It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free file gov The educational institution should be able to tell you if it is an eligible educational institution. Free file gov   Certain educational institutions located outside the United States also participate in the U. Free file gov S. Free file gov Department of Education's Federal Student Aid (FSA) programs. Free file gov Related expenses. Free file gov   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. Free file gov Prepaid expenses. Free file gov   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Free file gov See Academic period , earlier. Free file gov For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Free file gov You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Free file gov In the following examples, assume that each student is an eligible student at an eligible educational institution. Free file gov Example 1. Free file gov   Jackson is a sophomore in University V's degree program in dentistry. Free file gov This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Free file gov Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. Free file gov Example 2. Free file gov   Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Free file gov The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Free file gov Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Free file gov Donna bought hers at College W's bookstore. Free file gov Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. Free file gov Example 3. Free file gov   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Free file gov This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. Free file gov No portion of the fee covers personal expenses. Free file gov Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Free file gov Therefore, it is a qualified expense. Free file gov No Double Benefit Allowed You cannot do any of the following: 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. Free file gov Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. Free file gov Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. Free file gov 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). Free file gov See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Free file gov Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Free file gov See Adjustments to Qualified Education Expenses, next. Free file gov This image is too large to be displayed in the current screen. Free file gov Please click the link to view the image. Free file gov Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Free file gov The result is the amount of adjusted qualified education expenses for each student. Free file gov Tax-free educational assistance. Free file gov   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Free file gov See Academic period , earlier. Free file gov   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Free file gov This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Free file gov   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. Free file gov If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. Free file gov   Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Free file gov Generally, any scholarship or fellowship is treated as tax free. Free file gov However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Free file gov The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free file gov The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free file gov You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Free file gov For examples, see Coordination with Pell grants and other scholarships, later. Free file gov Refunds. Free file gov   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Free file gov Some tax-free educational assistance received after 2013 may be treated as a refund. Free file gov See Tax-free educational assistance , earlier. Free file gov Refunds received in 2013. Free file gov   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Free file gov Refunds received after 2013 but before your income tax return is filed. Free file gov   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Free file gov Refunds received after 2013 and after your income tax return is filed. Free file gov   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Free file gov See Credit recapture, next. Free file gov Credit recapture. Free file gov    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Free file gov You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Free file gov You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Free file gov Include that amount as an additional tax for the year the refund or tax-free assistance was received. Free file gov Example. Free file gov   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. Free file gov You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. Free file gov You claimed no other tax credits. Free file gov After you filed your return, your child withdrew from two courses and you received a refund of $2,900. Free file gov You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. Free file gov The refigured credit is $1,280 and your tax liability increased by $580. Free file gov See instructions for your 2014 income tax return to determine where to include this tax. Free file gov If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Free file gov Amounts that do not reduce qualified education expenses. Free file gov   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Free file gov   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Free file gov The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free file gov The use of the money is not restricted. Free file gov For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. Free file gov Coordination with Pell grants and other scholarships. Free file gov   In some cases, you may be able to reduce your tax liability by including scholarships in income. Free file gov If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Free file gov The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Free file gov Example 1—No scholarship. Free file gov Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. Free file gov Her AGI and her MAGI, for purposes of the credit, are $27,000. Free file gov Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. Free file gov She claims no credits other than the lifetime learning credit. Free file gov In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. Free file gov Judy and the college meet all requirements for the lifetime learning tax credit. Free file gov She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. Free file gov She claims a $900 lifetime learning credit and her tax after credits is $1,256. Free file gov Example 2—Scholarship excluded from income. Free file gov The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. Free file gov Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. Free file gov If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. Free file gov Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. Free file gov Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. Free file gov Example 3—Scholarship included in income. Free file gov The facts are the same as in Example 2—Scholarship excluded from income. Free file gov If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. Free file gov Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. Free file gov She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. Free file gov Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. Free file gov Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Free file gov This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Free file gov Sports, games, hobbies, and noncredit courses. Free file gov   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Free file gov However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. Free file gov Comprehensive or bundled fees. Free file gov   Some eligible educational institutions combine all of their fees for an academic period into one amount. Free file gov If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. Free file gov The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. Free file gov See Figuring the Credit , later, for more information about Form 1098-T. Free file gov Who Is an Eligible Student 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). Free file gov Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax 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. Free file gov For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. Free file gov You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Free file gov IF you. Free file gov . Free file gov . Free file gov THEN only. Free file gov . Free file gov . Free file gov 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. Free file gov The dependent cannot claim the credit. Free file gov 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. Free file gov You cannot claim the credit based on this dependent's expenses. Free file gov Expenses paid by dependent. Free file gov   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Free file gov Include these expenses when figuring the amount of your lifetime learning credit. Free file gov    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Free file gov Expenses paid by you. Free file gov   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. Free file gov If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. Free file gov Expenses paid by others. Free file gov   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Free file gov In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Free file gov If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Free file gov Example. Free file gov In 2013, Ms. Free file gov Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Free file gov For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Free file gov Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. Free file gov If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. Free file gov If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. Free file gov Tuition reduction. Free file gov   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Free file gov If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Free file gov For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free file gov Figuring the 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. Free file gov The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). Free file gov However, that amount may be reduced based on your MAGI. Free file gov See Effect of the Amount of Your Income on the Amount of Your Credit , later. Free file gov Example. Free file gov Bruce and Toni Harper are married and file a joint tax return. Free file gov For 2013, their MAGI is $75,000. Free file gov Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. Free file gov She already has a bachelor's degree in history and wants to become a nurse. Free file gov In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. Free file gov Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. Free file gov Form 1098-T. Free file gov   To help you figure your lifetime learning credit, the student should receive Form 1098-T. Free file gov Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Free file gov An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Free file gov However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. Free file gov When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Free file gov   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Free file gov    The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. Free file gov Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). Free file gov You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). Free file gov Modified adjusted gross income (MAGI). Free file gov   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Free file gov MAGI when using Form 1040A. Free file gov   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Free file gov MAGI when using Form 1040. Free file gov   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Free file gov You can use Worksheet 3-1 to figure your MAGI. Free file gov Worksheet 3-1. Free file gov MAGI for the Lifetime Learning Credit 1. Free file gov Enter your adjusted gross income  (Form 1040, line 38)   1. Free file gov   2. Free file gov Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Free file gov       3. Free file gov Enter your foreign housing deduction (Form 2555, line 50)   3. Free file gov       4. Free file gov Enter the amount of income from Puerto Rico you are excluding   4. Free file gov       5. Free file gov Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Free file gov       6. Free file gov Add the amounts on lines 2, 3, 4, and 5   6. Free file gov   7. Free file gov Add the amounts on lines 1 and 6. Free file gov  This is your modified adjusted  gross income. Free file gov Enter this amount  on Form 8863, line 14   7. Free file gov   Phaseout. Free file gov   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. Free file gov The same method is shown in the following example. Free file gov Example. Free file gov You are filing a joint return with a MAGI of $112,000. Free file gov In 2013, you paid $6,600 of qualified education expenses. Free file gov You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). Free file gov The result is a $1,320 (20% x $6,600) tentative credit. Free file gov 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. Free file gov The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. Free file gov The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). Free file gov The result is the amount of your phased out (reduced) lifetime learning credit ($990). Free file gov   $1,320 × $127,000 − $112,000  $20,000 = $990   Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Free file gov Enter the credit on Form 1040, line 49, or Form 1040A, line 31. Free file gov Note. Free file gov In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Free file gov Prev  Up  Next   Home   More Online Publications