(For my post on the American opportunity credit see here.)

This post will go into the details of another educational tax credit that can significantly lower your total tax bill – the lifetime learning credit.  As stated in the previous post about the American opportunity credit, the general way federal education credits work centers on the net payment of tuition by either the taxpayer or someone claiming him or her as a dependent. Then, at the beginning of the next tax year, that tuition will be memorialized by a Form 1098-T, which illustrates, among other information, the amount of tuition paid. Next, armed with the Form 1098-T, the taxpayer prepares a Form 8863 with his or her federal return, which accounts for the net tuition paid, and functions to figure the credit.

Now, we’ll get down to the specifics of the credit. The maximum tax savings one can obtain through the lifetime learning credit is $2,000, which means that up to $2,000 can be shaved off your taxes through simply taking the time to account for the tuition that you’ve already paid during the tax year. As you can tell, it’s well worth taking advantage of. However, unlike the American opportunity credit, the lifetime learning credit is not refundable, meaning that if your total tax owed goes to zero, but you still have some of the credit remaining, you essentially lose that portion.

Furthermore, the lifetime learning credit differs from the American opportunity credit in that, the lifetime learning credit can be used every year after high school, so for all post secondary education, including graduate school. Note that the American opportunity credit is only really available for undergraduate because you can only use it for the first four years of post-secondary education.

An additional flexibility in the lifetime learning credit, which the American opportunity credit does not have, comes in the form of both enrollment status and purpose. Specifically, you can still take the lifetime learning credit if you are deemed less than a half-time student, and what’s more, you don’t even have to be pursuing a degree. For example, this means that, even after you’ve earned undergraduate and graduate degrees, you can take a single training course to improve your job skills, and the tuition that you pay for that course can generate tax savings under the lifetime learning credit. To top it all off, you can even have a felony conviction on your record and still be eligible to take the lifetime learning credit, whereas with the American opportunity credit, a felony conviction makes you unable to receive the credit.     

Finally, individuals making more than $68,000 and married couples with a combined income of more than $136,000 are not able to take the lifetime learning credit. But any taxpayer for a given filing status below those amounts is eligible, and as you can gather, the lifetime learning credit is certainly worth capitalizing on.

For more information on the tax benefits of education, you can explore IRS Publication 970.

If you are experiencing issues tabulating the lifetime learning credit, or have any other tax issues or concerns, don’t hesitate to contact Dino Tax Co at (713) 397-4678, or email davie@dinotaxco.com any time. We’re happy to give you the initial phone consultation for free. Also, consider liking us on Facebook: https://www.facebook.com/dinotaxco