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Irs1040ez

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Irs1040ez

Irs1040ez 3. Irs1040ez   Adjustments to Income Table of Contents Individual Retirement Arrangement (IRA) Contributions and DeductionsContributions to Kay Bailey Hutchison Spousal IRAs. Irs1040ez Deductible contribution. Irs1040ez Nondeductible contribution. Irs1040ez You may be able to subtract amounts from your total income (Form 1040, line 22 or Form 1040A, line 15) or total effectively connected income (Form 1040NR, line 23) to get your adjusted gross income (Form 1040, line 37; Form 1040A, line 21; or Form 1040NR, line 36). Irs1040ez Some adjustments to income follow. Irs1040ez Contributions to your individual retirement arrangement (IRA) (Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 32), explained later in this publication. Irs1040ez Certain moving expenses (Form 1040, line 26; or Form 1040NR, line 26) if you changed job locations or started a new job in 2013. Irs1040ez See Publication 521, Moving Expenses, or see Form 3903, Moving Expenses, and its instructions. Irs1040ez Some health insurance costs (Form 1040, line 29 or Form 1040NR, line 29) if you were self-employed and had a net profit for the year, or if you received wages in 2013 from an S corporation in which you were a more-than-2% shareholder. Irs1040ez For more details, see Publication 535, Business Expenses. Irs1040ez Payments to your self-employed SEP, SIMPLE, or qualified plan (Form 1040, line 28 or Form 1040NR, line 28). Irs1040ez For more information, including limits on how much you can deduct, see Publication 560, Retirement Plans for Small Business. Irs1040ez Penalties paid on early withdrawal of savings (Form 1040, line 30 or Form 1040NR, line 30). Irs1040ez Form 1099-INT, Interest Income, or Form 1099-OID, Original Issue Discount, will show the amount of any penalty you were charged. Irs1040ez Alimony payments (Form 1040, line 31a). Irs1040ez For more information, see Publication 504, Divorced or Separated Individuals. Irs1040ez There are other items you can claim as adjustments to income. Irs1040ez These adjustments are discussed in your tax return instructions. Irs1040ez Individual Retirement Arrangement (IRA) Contributions and Deductions This section explains the tax treatment of amounts you pay into traditional IRAs. Irs1040ez A traditional IRA is any IRA that is not a Roth or SIMPLE IRA. Irs1040ez Roth and SIMPLE IRAs are defined earlier in the IRA discussion under Retirement Plan Distributions . Irs1040ez For more detailed information, see Publication 590. Irs1040ez Contributions. Irs1040ez   An IRA is a personal savings plan that offers you tax advantages to set aside money for your retirement. Irs1040ez Two advantages of a traditional IRA are: You may be able to deduct some or all of your contributions to it, depending on your circumstances, and Generally, amounts in your IRA, including earnings and gains, are not taxed until distributed. Irs1040ez    Although interest earned from your traditional IRA generally is not taxed in the year earned, it is not tax-exempt interest. Irs1040ez Do not report this interest on your tax return as tax-exempt interest. Irs1040ez General limit. Irs1040ez   The most that can be contributed for 2013 to your traditional IRA is the smaller of the following amounts. Irs1040ez Your taxable compensation for the year, or $5,500 ($6,500 if you were age 50 or older by the end of 2013). Irs1040ez Contributions to Kay Bailey Hutchison Spousal IRAs. Irs1040ez   In the case of a married couple filing a joint return for 2013, up to $5,500 ($6,500 for each spouse age 50 or older by the end of 2013) can be contributed to IRAs on behalf of each spouse, even if one spouse has little or no compensation. Irs1040ez For more information on the general limit and the Kay Bailey Hutchison Spousal IRA limit, see How Much Can Be Contributed? in Publication 590. Irs1040ez Deductible contribution. Irs1040ez   Generally, you can deduct the lesser of the contributions to your traditional IRA for the year or the general limit (or Kay Bailey Hutchison Spousal IRA limit, if applicable) just explained. Irs1040ez However, if you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. Irs1040ez Your deduction may be reduced or eliminated, depending on your filing status and the amount of your income. Irs1040ez For more information, see Limit if Covered by Employer Plan in Publication 590. Irs1040ez Nondeductible contribution. Irs1040ez   The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution. Irs1040ez You must file Form 8606, Nondeductible IRAs, to report nondeductible contributions even if you do not have to file a tax return for the year. Irs1040ez    For 2014, the most that can be contributed to your traditional IRA is $5,500 ($6,500 if you are age 50 or older at the end of 2014). Irs1040ez Prev  Up  Next   Home   More Online Publications
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Understanding Your CP07 Notice

We received your tax return and are holding your refund until we complete a more thorough review of the benefits you claimed under a treaty and/or the deductions claimed on Schedule A.


What you need to do

  • No further action is needed on your part at this time.
  • Please don't file a duplicate return as this will slow down the review process.

You may want to

  • If you've moved or are planning to move since the time of filing, please contact IRS and/or file Form 8822.

Answers to Common Questions

How long will it take for me to get my refund?
Depending upon the results of our review, if we find no issues, we’ll send you your refund within 6-12 weeks, as long as you don't owe other taxes or debts we're required to collect.

What happens if you find problems?
We will send you a notice with additional information and instructions within 6-12 weeks.

Why was my return selected for review?
Cases have been randomly selected that are claiming treaty benefits and/or claimed deductions on Schedule A.

How will I be contacted?
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Page Last Reviewed or Updated: 19-Feb-2014

The Irs1040ez

Irs1040ez 3. Irs1040ez   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. Irs1040ez They are the American opportunity credit and the lifetime learning credit. Irs1040ez This chapter discusses the lifetime learning credit. Irs1040ez The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . Irs1040ez 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. Irs1040ez What is the tax benefit of the lifetime learning credit. Irs1040ez   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. Irs1040ez There is no limit on the number of years the lifetime learning credit can be claimed for each student. Irs1040ez   A tax credit reduces the amount of income tax you may have to pay. Irs1040ez Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Irs1040ez The lifetime learning credit is a nonrefundable credit. Irs1040ez 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. Irs1040ez   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. Irs1040ez Can you claim more than one education credit this year. Irs1040ez   For each student, you can elect for any year only one of the credits. Irs1040ez 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. Irs1040ez   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. Irs1040ez   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. Irs1040ez 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. Irs1040ez Differences between the American opportunity and lifetime learning credits. Irs1040ez   There are several differences between these two credits. Irs1040ez 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. Irs1040ez 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. Irs1040ez 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. Irs1040ez Overview of the lifetime learning credit. Irs1040ez   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. Irs1040ez The details are discussed in this chapter. Irs1040ez 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. Irs1040ez Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. Irs1040ez You pay qualified education expenses of higher education. Irs1040ez You pay the education expenses for an eligible student. Irs1040ez The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Irs1040ez Table 3-1. Irs1040ez 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. Irs1040ez 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. Irs1040ez “Qualified education expenses” are defined later under Qualified Education Expenses . Irs1040ez “Eligible students” are defined later under Who Is an Eligible Student . Irs1040ez A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Irs1040ez 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. Irs1040ez Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. Irs1040ez Your filing status is married filing separately. Irs1040ez You are listed as a dependent on another person's tax return (such as your parents'). Irs1040ez See Who Can Claim a Dependent's Expenses , later. Irs1040ez Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). Irs1040ez MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Irs1040ez 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. Irs1040ez More information on nonresident aliens can be found in Publication 519. Irs1040ez You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. Irs1040ez 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. Irs1040ez 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. Irs1040ez 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. Irs1040ez Academic period. Irs1040ez   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. Irs1040ez 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. Irs1040ez Paid with borrowed funds. Irs1040ez   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Irs1040ez 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. Irs1040ez Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Irs1040ez Student withdraws from class(es). Irs1040ez   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. Irs1040ez 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. Irs1040ez The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. Irs1040ez Eligible educational institution. Irs1040ez   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. Irs1040ez S. Irs1040ez Department of Education. Irs1040ez It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Irs1040ez The educational institution should be able to tell you if it is an eligible educational institution. Irs1040ez   Certain educational institutions located outside the United States also participate in the U. Irs1040ez S. Irs1040ez Department of Education's Federal Student Aid (FSA) programs. Irs1040ez Related expenses. Irs1040ez   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. Irs1040ez Prepaid expenses. Irs1040ez   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. Irs1040ez See Academic period , earlier. Irs1040ez 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). Irs1040ez 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). Irs1040ez In the following examples, assume that each student is an eligible student at an eligible educational institution. Irs1040ez Example 1. Irs1040ez   Jackson is a sophomore in University V's degree program in dentistry. Irs1040ez 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. Irs1040ez Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. Irs1040ez Example 2. Irs1040ez   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. Irs1040ez 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. Irs1040ez Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Irs1040ez Donna bought hers at College W's bookstore. Irs1040ez 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. Irs1040ez Example 3. Irs1040ez   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Irs1040ez 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. Irs1040ez No portion of the fee covers personal expenses. Irs1040ez Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Irs1040ez Therefore, it is a qualified expense. Irs1040ez 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. Irs1040ez Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. Irs1040ez Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. Irs1040ez 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). Irs1040ez 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. Irs1040ez 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. Irs1040ez See Adjustments to Qualified Education Expenses, next. Irs1040ez This image is too large to be displayed in the current screen. Irs1040ez Please click the link to view the image. Irs1040ez 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. Irs1040ez The result is the amount of adjusted qualified education expenses for each student. Irs1040ez Tax-free educational assistance. Irs1040ez   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. Irs1040ez See Academic period , earlier. Irs1040ez   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Irs1040ez 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). Irs1040ez   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. Irs1040ez 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. Irs1040ez   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. Irs1040ez Generally, any scholarship or fellowship is treated as tax free. Irs1040ez 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. Irs1040ez 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. Irs1040ez 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. Irs1040ez 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. Irs1040ez For examples, see Coordination with Pell grants and other scholarships, later. Irs1040ez Refunds. Irs1040ez   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. Irs1040ez Some tax-free educational assistance received after 2013 may be treated as a refund. Irs1040ez See Tax-free educational assistance , earlier. Irs1040ez Refunds received in 2013. Irs1040ez   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. Irs1040ez Refunds received after 2013 but before your income tax return is filed. Irs1040ez   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. Irs1040ez Refunds received after 2013 and after your income tax return is filed. Irs1040ez   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. Irs1040ez See Credit recapture, next. Irs1040ez Credit recapture. Irs1040ez    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. Irs1040ez 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. Irs1040ez 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). Irs1040ez Include that amount as an additional tax for the year the refund or tax-free assistance was received. Irs1040ez Example. Irs1040ez   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. Irs1040ez You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. Irs1040ez You claimed no other tax credits. Irs1040ez After you filed your return, your child withdrew from two courses and you received a refund of $2,900. Irs1040ez You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. Irs1040ez The refigured credit is $1,280 and your tax liability increased by $580. Irs1040ez See instructions for your 2014 income tax return to determine where to include this tax. Irs1040ez 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. Irs1040ez Amounts that do not reduce qualified education expenses. Irs1040ez   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. Irs1040ez   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. Irs1040ez 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. Irs1040ez The use of the money is not restricted. Irs1040ez For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. Irs1040ez Coordination with Pell grants and other scholarships. Irs1040ez   In some cases, you may be able to reduce your tax liability by including scholarships in income. Irs1040ez 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. Irs1040ez The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Irs1040ez Example 1—No scholarship. Irs1040ez Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. Irs1040ez Her AGI and her MAGI, for purposes of the credit, are $27,000. Irs1040ez 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. Irs1040ez She claims no credits other than the lifetime learning credit. Irs1040ez 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. Irs1040ez Judy and the college meet all requirements for the lifetime learning tax credit. Irs1040ez She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. Irs1040ez She claims a $900 lifetime learning credit and her tax after credits is $1,256. Irs1040ez Example 2—Scholarship excluded from income. Irs1040ez The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. Irs1040ez Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. Irs1040ez 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. Irs1040ez Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. Irs1040ez Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. Irs1040ez Example 3—Scholarship included in income. Irs1040ez The facts are the same as in Example 2—Scholarship excluded from income. Irs1040ez 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. Irs1040ez Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. Irs1040ez She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. Irs1040ez Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. Irs1040ez 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. Irs1040ez This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Irs1040ez Sports, games, hobbies, and noncredit courses. Irs1040ez   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. Irs1040ez 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. Irs1040ez Comprehensive or bundled fees. Irs1040ez   Some eligible educational institutions combine all of their fees for an academic period into one amount. Irs1040ez 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. Irs1040ez 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. Irs1040ez See Figuring the Credit , later, for more information about Form 1098-T. Irs1040ez 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). Irs1040ez 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. Irs1040ez For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. Irs1040ez You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Irs1040ez IF you. Irs1040ez . Irs1040ez . Irs1040ez THEN only. Irs1040ez . Irs1040ez . Irs1040ez 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. Irs1040ez The dependent cannot claim the credit. Irs1040ez 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. Irs1040ez You cannot claim the credit based on this dependent's expenses. Irs1040ez Expenses paid by dependent. Irs1040ez   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. Irs1040ez Include these expenses when figuring the amount of your lifetime learning credit. Irs1040ez    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. Irs1040ez Expenses paid by you. Irs1040ez   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. Irs1040ez 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. Irs1040ez Expenses paid by others. Irs1040ez   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. Irs1040ez In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Irs1040ez If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Irs1040ez Example. Irs1040ez In 2013, Ms. Irs1040ez Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Irs1040ez 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. Irs1040ez 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. Irs1040ez 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. Irs1040ez If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. Irs1040ez Tuition reduction. Irs1040ez   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. Irs1040ez 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. Irs1040ez For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Irs1040ez 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. Irs1040ez The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). Irs1040ez However, that amount may be reduced based on your MAGI. Irs1040ez See Effect of the Amount of Your Income on the Amount of Your Credit , later. Irs1040ez Example. Irs1040ez Bruce and Toni Harper are married and file a joint tax return. Irs1040ez For 2013, their MAGI is $75,000. Irs1040ez Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. Irs1040ez She already has a bachelor's degree in history and wants to become a nurse. Irs1040ez In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. Irs1040ez Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. Irs1040ez Form 1098-T. Irs1040ez   To help you figure your lifetime learning credit, the student should receive Form 1098-T. Irs1040ez 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. Irs1040ez An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Irs1040ez However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. Irs1040ez When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Irs1040ez   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. Irs1040ez    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. Irs1040ez 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). Irs1040ez 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). Irs1040ez Modified adjusted gross income (MAGI). Irs1040ez   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Irs1040ez MAGI when using Form 1040A. Irs1040ez   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Irs1040ez MAGI when using Form 1040. Irs1040ez   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. Irs1040ez You can use Worksheet 3-1 to figure your MAGI. Irs1040ez Worksheet 3-1. Irs1040ez MAGI for the Lifetime Learning Credit 1. Irs1040ez Enter your adjusted gross income  (Form 1040, line 38)   1. Irs1040ez   2. Irs1040ez Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Irs1040ez       3. Irs1040ez Enter your foreign housing deduction (Form 2555, line 50)   3. Irs1040ez       4. Irs1040ez Enter the amount of income from Puerto Rico you are excluding   4. Irs1040ez       5. Irs1040ez Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Irs1040ez       6. Irs1040ez Add the amounts on lines 2, 3, 4, and 5   6. Irs1040ez   7. Irs1040ez Add the amounts on lines 1 and 6. Irs1040ez  This is your modified adjusted  gross income. Irs1040ez Enter this amount  on Form 8863, line 14   7. Irs1040ez   Phaseout. Irs1040ez   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. Irs1040ez The same method is shown in the following example. Irs1040ez Example. Irs1040ez You are filing a joint return with a MAGI of $112,000. Irs1040ez In 2013, you paid $6,600 of qualified education expenses. Irs1040ez You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). Irs1040ez The result is a $1,320 (20% x $6,600) tentative credit. Irs1040ez 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. Irs1040ez The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. Irs1040ez The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). Irs1040ez The result is the amount of your phased out (reduced) lifetime learning credit ($990). Irs1040ez   $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. Irs1040ez Enter the credit on Form 1040, line 49, or Form 1040A, line 31. Irs1040ez Note. Irs1040ez 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. Irs1040ez Prev  Up  Next   Home   More Online Publications