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Free State Tax Filing 2014

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Free State Tax Filing 2014

Free state tax filing 2014 4. Free state tax filing 2014   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. Free state tax filing 2014 Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. Free state tax filing 2014 Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. Free state tax filing 2014 If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. Free state tax filing 2014 You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. Free state tax filing 2014 Special rules apply if you rent your condominium to others. Free state tax filing 2014 You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. Free state tax filing 2014 In addition, you can deduct any dues or assessments paid for maintenance of the common elements. Free state tax filing 2014 You cannot deduct special assessments you pay to a condominium management corporation for improvements. Free state tax filing 2014 However, you may be able to recover your share of the cost of any improvement by taking depreciation. Free state tax filing 2014 Cooperatives If you live in a cooperative, you do not own your apartment. Free state tax filing 2014 Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. Free state tax filing 2014 If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. Free state tax filing 2014 In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. Free state tax filing 2014 Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. Free state tax filing 2014 Figure your depreciation deduction as follows. Free state tax filing 2014 Figure the depreciation for all the depreciable real property owned by the corporation. Free state tax filing 2014 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Free state tax filing 2014 ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Free state tax filing 2014 Multiply your cost per share by the total number of outstanding shares. Free state tax filing 2014 Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Free state tax filing 2014 Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Free state tax filing 2014 Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Free state tax filing 2014 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Free state tax filing 2014 Multiply the result of (2) by the percentage you figured in (3). Free state tax filing 2014 This is your depreciation on the stock. Free state tax filing 2014 Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. Free state tax filing 2014 Payments added to capital account. Free state tax filing 2014   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. Free state tax filing 2014 For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. Free state tax filing 2014   Treat as a capital cost the amount you were assessed for capital items. Free state tax filing 2014 This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. Free state tax filing 2014   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Free state tax filing 2014 Otherwise, figure your share in the following manner. Free state tax filing 2014 Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Free state tax filing 2014 Multiply the corporation's deductible interest by the number you figured in (1). Free state tax filing 2014 This is your share of the interest. Free state tax filing 2014 Multiply the corporation's deductible taxes by the number you figured in (1). Free state tax filing 2014 This is your share of the taxes. Free state tax filing 2014 Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Free state tax filing 2014 You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Free state tax filing 2014 You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Free state tax filing 2014 However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Free state tax filing 2014 Example. Free state tax filing 2014 Your tax year is the calendar year. Free state tax filing 2014 You moved from your home in May and started renting it out on June 1. Free state tax filing 2014 You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Free state tax filing 2014 Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Free state tax filing 2014 When figuring depreciation, treat the property as placed in service on June 1. Free state tax filing 2014 Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. Free state tax filing 2014 Fair market value. Free state tax filing 2014   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Free state tax filing 2014 Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. Free state tax filing 2014 Figuring the basis. Free state tax filing 2014   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. Free state tax filing 2014 For other increases and decreases to basis, see Adjusted Basis in chapter 2. Free state tax filing 2014 Example. Free state tax filing 2014 Several years ago you built your home for $140,000 on a lot that cost you $14,000. Free state tax filing 2014 Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Free state tax filing 2014 Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Free state tax filing 2014 Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. Free state tax filing 2014 The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). Free state tax filing 2014 On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. Free state tax filing 2014 The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). Free state tax filing 2014 Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. Free state tax filing 2014 (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Free state tax filing 2014 ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Free state tax filing 2014 The fair market value of the property on the date you change your apartment to rental use. Free state tax filing 2014 This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Free state tax filing 2014 The corporation's adjusted basis in the property on that date. Free state tax filing 2014 Do not subtract depreciation when figuring the corporation's adjusted basis. Free state tax filing 2014 If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). Free state tax filing 2014 The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Free state tax filing 2014 Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Free state tax filing 2014 Generally, that will be MACRS for any conversion after 1986. Free state tax filing 2014 Treat the property as placed in service on the conversion date. Free state tax filing 2014 Example. Free state tax filing 2014 Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Free state tax filing 2014 Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. Free state tax filing 2014 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . Free state tax filing 2014 01364). Free state tax filing 2014 Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Free state tax filing 2014 You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Free state tax filing 2014 You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. Free state tax filing 2014 There is no change in the types of expenses deductible for the personal-use part of your property. Free state tax filing 2014 Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Free state tax filing 2014 You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Free state tax filing 2014 You do not have to divide the expenses that belong only to the rental part of your property. Free state tax filing 2014 For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Free state tax filing 2014 If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. Free state tax filing 2014 You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Free state tax filing 2014 How to divide expenses. Free state tax filing 2014   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. Free state tax filing 2014 You can use any reasonable method for dividing the expense. Free state tax filing 2014 It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Free state tax filing 2014 The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. Free state tax filing 2014 Example. Free state tax filing 2014 You rent a room in your house. Free state tax filing 2014 The room is 12 × 15 feet, or 180 square feet. Free state tax filing 2014 Your entire house has 1,800 square feet of floor space. Free state tax filing 2014 You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. Free state tax filing 2014 If your heating bill for the year for the entire house was $600, $60 ($600 × . Free state tax filing 2014 10) is a rental expense. Free state tax filing 2014 The balance, $540, is a personal expense that you cannot deduct. Free state tax filing 2014 Duplex. Free state tax filing 2014   A common situation is the duplex where you live in one unit and rent out the other. Free state tax filing 2014 Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. Free state tax filing 2014 Example. Free state tax filing 2014 You own a duplex and live in one half, renting the other half. Free state tax filing 2014 Both units are approximately the same size. Free state tax filing 2014 Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. Free state tax filing 2014 You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). Free state tax filing 2014 Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Free state tax filing 2014 You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Free state tax filing 2014 Where to report. Free state tax filing 2014   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. Free state tax filing 2014 For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Free state tax filing 2014   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Free state tax filing 2014 You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Free state tax filing 2014 Presumption of profit. Free state tax filing 2014   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. Free state tax filing 2014 Postponing decision. Free state tax filing 2014   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. Free state tax filing 2014 You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. Free state tax filing 2014 You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Free state tax filing 2014 More information. Free state tax filing 2014   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Free state tax filing 2014 Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. Free state tax filing 2014 Instead of selling the house she had been living in, she decided to change it to rental property. Free state tax filing 2014 Eileen selected a tenant and started renting the house on February 1. Free state tax filing 2014 Eileen charges $750 a month for rent and collects it herself. Free state tax filing 2014 Eileen also received a $750 security deposit from her tenant. Free state tax filing 2014 Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. Free state tax filing 2014 Her rental expenses for the year are as follows. Free state tax filing 2014   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. Free state tax filing 2014 She can deduct eleven-twelfths of these expenses as rental expenses. Free state tax filing 2014 She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. Free state tax filing 2014 She cannot deduct the balance of the fire insurance because it is a personal expense. Free state tax filing 2014 Eileen bought this house in 1984 for $35,000. Free state tax filing 2014 Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. Free state tax filing 2014 Before changing it to rental property, Eileen added several improvements to the house. Free state tax filing 2014 She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. Free state tax filing 2014 Of this amount, $35,000 was for the land and $117,000 was for the house. Free state tax filing 2014 Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. Free state tax filing 2014 As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. Free state tax filing 2014 She chooses the GDS recovery period of 27. Free state tax filing 2014 5 years. Free state tax filing 2014 She uses Table 2-2d to find her depreciation percentage. Free state tax filing 2014 Since she placed the property in service in February, the percentage is 3. Free state tax filing 2014 182%. Free state tax filing 2014 On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. Free state tax filing 2014 The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. Free state tax filing 2014 She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. Free state tax filing 2014 On May 1, Eileen paid $4,000 to have a furnace installed in the house. Free state tax filing 2014 The furnace is residential rental property. Free state tax filing 2014 Because she placed the property in service in May, the percentage from Table 2-2d is 2. Free state tax filing 2014 273%. Free state tax filing 2014 Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . Free state tax filing 2014 03182) $1,241   Dishwasher ($425 × . Free state tax filing 2014 20) 85   Furnace ($4,000 × . Free state tax filing 2014 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. Free state tax filing 2014 She enters her income, expenses, and depreciation for the house in the column for Property A. Free state tax filing 2014 Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. Free state tax filing 2014 See the Instructions for Form 4562 for more information on preparing the form. Free state tax filing 2014 Prev  Up  Next   Home   More Online Publications
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The Free State Tax Filing 2014

Free state tax filing 2014 3. Free state tax filing 2014   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 state tax filing 2014 They are the American opportunity credit and the lifetime learning credit. Free state tax filing 2014 This chapter discusses the lifetime learning credit. Free state tax filing 2014 The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . Free state tax filing 2014 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 state tax filing 2014 What is the tax benefit of the lifetime learning credit. Free state tax filing 2014   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 state tax filing 2014 There is no limit on the number of years the lifetime learning credit can be claimed for each student. Free state tax filing 2014   A tax credit reduces the amount of income tax you may have to pay. Free state tax filing 2014 Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Free state tax filing 2014 The lifetime learning credit is a nonrefundable credit. Free state tax filing 2014 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 state tax filing 2014   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. Free state tax filing 2014 Can you claim more than one education credit this year. Free state tax filing 2014   For each student, you can elect for any year only one of the credits. Free state tax filing 2014 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 state tax filing 2014   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 state tax filing 2014   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 state tax filing 2014 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 state tax filing 2014 Differences between the American opportunity and lifetime learning credits. Free state tax filing 2014   There are several differences between these two credits. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 Overview of the lifetime learning credit. Free state tax filing 2014   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. Free state tax filing 2014 The details are discussed in this chapter. Free state tax filing 2014 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 state tax filing 2014 Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. Free state tax filing 2014 You pay qualified education expenses of higher education. Free state tax filing 2014 You pay the education expenses for an eligible student. Free state tax filing 2014 The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Free state tax filing 2014 Table 3-1. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 “Qualified education expenses” are defined later under Qualified Education Expenses . Free state tax filing 2014 “Eligible students” are defined later under Who Is an Eligible Student . Free state tax filing 2014 A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Free state tax filing 2014 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 state tax filing 2014 Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. Free state tax filing 2014 Your filing status is married filing separately. Free state tax filing 2014 You are listed as a dependent on another person's tax return (such as your parents'). Free state tax filing 2014 See Who Can Claim a Dependent's Expenses , later. Free state tax filing 2014 Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). Free state tax filing 2014 MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Free state tax filing 2014 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 state tax filing 2014 More information on nonresident aliens can be found in Publication 519. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 Academic period. Free state tax filing 2014   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 state tax filing 2014 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 state tax filing 2014 Paid with borrowed funds. Free state tax filing 2014   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Free state tax filing 2014 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 state tax filing 2014 Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Free state tax filing 2014 Student withdraws from class(es). Free state tax filing 2014   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. Free state tax filing 2014 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 state tax filing 2014 The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. Free state tax filing 2014 Eligible educational institution. Free state tax filing 2014   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 state tax filing 2014 S. Free state tax filing 2014 Department of Education. Free state tax filing 2014 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Free state tax filing 2014 The educational institution should be able to tell you if it is an eligible educational institution. Free state tax filing 2014   Certain educational institutions located outside the United States also participate in the U. Free state tax filing 2014 S. Free state tax filing 2014 Department of Education's Federal Student Aid (FSA) programs. Free state tax filing 2014 Related expenses. Free state tax filing 2014   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 state tax filing 2014 Prepaid expenses. Free state tax filing 2014   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 state tax filing 2014 See Academic period , earlier. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 In the following examples, assume that each student is an eligible student at an eligible educational institution. Free state tax filing 2014 Example 1. Free state tax filing 2014   Jackson is a sophomore in University V's degree program in dentistry. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 Example 2. Free state tax filing 2014   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 state tax filing 2014 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 state tax filing 2014 Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Free state tax filing 2014 Donna bought hers at College W's bookstore. Free state tax filing 2014 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 state tax filing 2014 Example 3. Free state tax filing 2014   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 state tax filing 2014 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 state tax filing 2014 No portion of the fee covers personal expenses. Free state tax filing 2014 Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Free state tax filing 2014 Therefore, it is a qualified expense. Free state tax filing 2014 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 state tax filing 2014 Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. Free state tax filing 2014 Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 See Adjustments to Qualified Education Expenses, next. Free state tax filing 2014 This image is too large to be displayed in the current screen. Free state tax filing 2014 Please click the link to view the image. Free state tax filing 2014 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 state tax filing 2014 The result is the amount of adjusted qualified education expenses for each student. Free state tax filing 2014 Tax-free educational assistance. Free state tax filing 2014   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 state tax filing 2014 See Academic period , earlier. Free state tax filing 2014   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Free state tax filing 2014 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 state tax filing 2014   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 state tax filing 2014 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 state tax filing 2014   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 state tax filing 2014 Generally, any scholarship or fellowship is treated as tax free. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 For examples, see Coordination with Pell grants and other scholarships, later. Free state tax filing 2014 Refunds. Free state tax filing 2014   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 state tax filing 2014 Some tax-free educational assistance received after 2013 may be treated as a refund. Free state tax filing 2014 See Tax-free educational assistance , earlier. Free state tax filing 2014 Refunds received in 2013. Free state tax filing 2014   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 state tax filing 2014 Refunds received after 2013 but before your income tax return is filed. Free state tax filing 2014   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 state tax filing 2014 Refunds received after 2013 and after your income tax return is filed. Free state tax filing 2014   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 state tax filing 2014 See Credit recapture, next. Free state tax filing 2014 Credit recapture. Free state tax filing 2014    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 state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 Include that amount as an additional tax for the year the refund or tax-free assistance was received. Free state tax filing 2014 Example. Free state tax filing 2014   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. Free state tax filing 2014 You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. Free state tax filing 2014 You claimed no other tax credits. Free state tax filing 2014 After you filed your return, your child withdrew from two courses and you received a refund of $2,900. Free state tax filing 2014 You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. Free state tax filing 2014 The refigured credit is $1,280 and your tax liability increased by $580. Free state tax filing 2014 See instructions for your 2014 income tax return to determine where to include this tax. Free state tax filing 2014 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 state tax filing 2014 Amounts that do not reduce qualified education expenses. Free state tax filing 2014   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 state tax filing 2014   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 state tax filing 2014 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 state tax filing 2014 The use of the money is not restricted. Free state tax filing 2014 For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. Free state tax filing 2014 Coordination with Pell grants and other scholarships. Free state tax filing 2014   In some cases, you may be able to reduce your tax liability by including scholarships in income. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 Example 1—No scholarship. Free state tax filing 2014 Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. Free state tax filing 2014 Her AGI and her MAGI, for purposes of the credit, are $27,000. Free state tax filing 2014 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 state tax filing 2014 She claims no credits other than the lifetime learning credit. Free state tax filing 2014 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 state tax filing 2014 Judy and the college meet all requirements for the lifetime learning tax credit. Free state tax filing 2014 She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. Free state tax filing 2014 She claims a $900 lifetime learning credit and her tax after credits is $1,256. Free state tax filing 2014 Example 2—Scholarship excluded from income. Free state tax filing 2014 The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. Free state tax filing 2014 Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. Free state tax filing 2014 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 state tax filing 2014 Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. Free state tax filing 2014 Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. Free state tax filing 2014 Example 3—Scholarship included in income. Free state tax filing 2014 The facts are the same as in Example 2—Scholarship excluded from income. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. Free state tax filing 2014 Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. Free state tax filing 2014 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 state tax filing 2014 This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Free state tax filing 2014 Sports, games, hobbies, and noncredit courses. Free state tax filing 2014   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 state tax filing 2014 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 state tax filing 2014 Comprehensive or bundled fees. Free state tax filing 2014   Some eligible educational institutions combine all of their fees for an academic period into one amount. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 See Figuring the Credit , later, for more information about Form 1098-T. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. Free state tax filing 2014 You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Free state tax filing 2014 IF you. Free state tax filing 2014 . Free state tax filing 2014 . Free state tax filing 2014 THEN only. Free state tax filing 2014 . Free state tax filing 2014 . Free state tax filing 2014 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 state tax filing 2014 The dependent cannot claim the credit. Free state tax filing 2014 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 state tax filing 2014 You cannot claim the credit based on this dependent's expenses. Free state tax filing 2014 Expenses paid by dependent. Free state tax filing 2014   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 state tax filing 2014 Include these expenses when figuring the amount of your lifetime learning credit. Free state tax filing 2014    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 state tax filing 2014 Expenses paid by you. Free state tax filing 2014   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 state tax filing 2014 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 state tax filing 2014 Expenses paid by others. Free state tax filing 2014   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 state tax filing 2014 In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Free state tax filing 2014 If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Free state tax filing 2014 Example. Free state tax filing 2014 In 2013, Ms. Free state tax filing 2014 Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Free state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. Free state tax filing 2014 Tuition reduction. Free state tax filing 2014   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 state tax filing 2014 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 state tax filing 2014 For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Free state tax filing 2014 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 state tax filing 2014 The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). Free state tax filing 2014 However, that amount may be reduced based on your MAGI. Free state tax filing 2014 See Effect of the Amount of Your Income on the Amount of Your Credit , later. Free state tax filing 2014 Example. Free state tax filing 2014 Bruce and Toni Harper are married and file a joint tax return. Free state tax filing 2014 For 2013, their MAGI is $75,000. Free state tax filing 2014 Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. Free state tax filing 2014 She already has a bachelor's degree in history and wants to become a nurse. Free state tax filing 2014 In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. Free state tax filing 2014 Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. Free state tax filing 2014 Form 1098-T. Free state tax filing 2014   To help you figure your lifetime learning credit, the student should receive Form 1098-T. Free state tax filing 2014 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 state tax filing 2014 An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Free state tax filing 2014 However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. Free state tax filing 2014 When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Free state tax filing 2014   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 state tax filing 2014    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 state tax filing 2014 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 state tax filing 2014 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 state tax filing 2014 Modified adjusted gross income (MAGI). Free state tax filing 2014   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Free state tax filing 2014 MAGI when using Form 1040A. Free state tax filing 2014   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Free state tax filing 2014 MAGI when using Form 1040. Free state tax filing 2014   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 state tax filing 2014 You can use Worksheet 3-1 to figure your MAGI. Free state tax filing 2014 Worksheet 3-1. Free state tax filing 2014 MAGI for the Lifetime Learning Credit 1. Free state tax filing 2014 Enter your adjusted gross income  (Form 1040, line 38)   1. Free state tax filing 2014   2. Free state tax filing 2014 Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Free state tax filing 2014       3. Free state tax filing 2014 Enter your foreign housing deduction (Form 2555, line 50)   3. Free state tax filing 2014       4. Free state tax filing 2014 Enter the amount of income from Puerto Rico you are excluding   4. Free state tax filing 2014       5. Free state tax filing 2014 Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Free state tax filing 2014       6. Free state tax filing 2014 Add the amounts on lines 2, 3, 4, and 5   6. Free state tax filing 2014   7. Free state tax filing 2014 Add the amounts on lines 1 and 6. Free state tax filing 2014  This is your modified adjusted  gross income. Free state tax filing 2014 Enter this amount  on Form 8863, line 14   7. Free state tax filing 2014   Phaseout. Free state tax filing 2014   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 state tax filing 2014 The same method is shown in the following example. Free state tax filing 2014 Example. Free state tax filing 2014 You are filing a joint return with a MAGI of $112,000. Free state tax filing 2014 In 2013, you paid $6,600 of qualified education expenses. Free state tax filing 2014 You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). Free state tax filing 2014 The result is a $1,320 (20% x $6,600) tentative credit. Free state tax filing 2014 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 state tax filing 2014 The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. Free state tax filing 2014 The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). Free state tax filing 2014 The result is the amount of your phased out (reduced) lifetime learning credit ($990). Free state tax filing 2014   $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 state tax filing 2014 Enter the credit on Form 1040, line 49, or Form 1040A, line 31. Free state tax filing 2014 Note. Free state tax filing 2014 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 state tax filing 2014 Prev  Up  Next   Home   More Online Publications