The first part in this series covered the general advantages and rules surrounding the American Opportunity Credit. Now we will be taking a look at its related credit, the Lifetime Learning Credit. Many of the qualifications and rules are similar to the American Opportunity Credit, such as what are considered qualified educational expenses, who qualified as an eligible student, parents being able to claim dependent students, and other rules. See our other article on qualified educational expenses for more details.
Unlike the American Opportunity Credit, the Lifetime Learning Credit may be claimed on your individual tax return for an unlimited amount of years. You do not even need to be pursuing a degree or be a part-time student to qualify.
Up to $2,000 of the credit may be claimed per return for the first $10,000 of qualified educational expenses. Just like the American Opportunity Credit, there is also a modified adjusted gross income (MAGI) limit, but the number is set a bit lower at $67,000 if filing single and $134,000 if married, filing jointly. The credit begins to get phased out at $57,000 if filing single and $114,000 married, filing jointly.
However, unlike the other credit, the Lifetime Learning Credit is nonrefundable. So, even if your final tax bill that you owe is a negative number, it may not be refundable. For example:
Dominic signed up in 2018 at Cypress College for the fall semester for one class in automotive repair. He paid $230 in registration fees, $35 for a parking permit, and $500 in lab materials and books. At the start of 2019, Dominic prepares his tax return and claims the Lifetime Learning Credit.
He later learns from his tax preparer that he cannot claim the parking amount on the credit. So, his total credit he can claim goes down to $730 for 2018. He also learns that even after his deductions and other adjustments are calculated, his total tax liability he has to pay is $500. He will not be getting a refund, but the Lifetime Learning credit cancels out ($500-$730= -$230) the tax he has to pay.
Even if the credit may not be refundable, it is still advantageous to use the Lifetime Learning Credit because it can potentially turn the amount you may owe to the IRS into nothing, which translates into savings for you. It is also less strict in its eligible student requirements by not demanding part-time status, so even just taking one class at a community college can allow you to use this credit.
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