Lifetime
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Lifetime
For 2022, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the American opportunity credit (this chapter) and the lifetime learning credit (chapter 3).
For each student, you can elect for any year only one of the credits. For example, if you elect to claim the American opportunity credit for a dependent on your 2022 tax return, you can't use that same dependent's qualified education expenses to figure the lifetime learning credit for 2022.
There are several differences between these two credits. For example, you can claim the American opportunity credit based on the same student's expenses for no more than 4 tax years. 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. The differences between these credits are shown in the Appendix near the end of this publication.
For 2022, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the American opportunity credit and the lifetime learning credit. This chapter discusses the lifetime learning credit. The American opportunity credit is discussed in chapter 2.
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. There is no limit on the number of years the lifetime learning credit can be claimed for each student.
For each student, you can elect for any year only one of the credits. For example, if you elect to claim the lifetime learning credit for a child on your 2022 tax return, you can't, for that same child, also claim the American opportunity credit for 2022.
There are several differences between these two credits. For example, you can claim the American opportunity credit for the same student for no more than 4 tax years. 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. The differences between these credits are shown in the Appendix near the end of this publication.
The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent you claim on your tax return. Generally, the credit is allowed for qualified education expenses paid in 2022 for an academic period beginning in 2022 or in the first 3 months of 2023.
You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. 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. Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account.
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. The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills.
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). See Coordination With American Opportunity and Lifetime Learning Credits in chapter 6 and Coordination With American Opportunity and Lifetime Learning Credits in chapter 7.
You pay $9,300 in tuition and fees in December 2022, and your child began college in January 2023. You filed your 2022 tax return on February 14, 2023, and claimed a lifetime learning credit of $1,860. You claimed no other tax credits. After you filed your return, your child withdrew from two courses and you received a refund of $2,900. You must refigure your 2022 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. The refigured credit is $1,280 and your tax liability increased by $580. See the instructions for your 2023 income tax return to determine where to include this tax.
Judy, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. The adjusted gross income (AGI) and the MAGI, for purposes of the credit, are $27,800. Judy claims the standard deduction of $12,950, resulting in taxable income of $14,850 and a tax liability before credits of $1,580. Judy claims no credits other than the lifetime learning credit. In July 2022, Judy paid $700 for the summer 2022 semester; in August 2022, Judy paid $1,900 for the fall 2022 semester; and in December 2022, Judy paid another $1,900 for the spring semester beginning in January 2023. Judy and the college meet all requirements for the lifetime learning credit. All of the $4,500 tuition paid in 2022 can be used when figuring the 2022 lifetime learning credit. Judy claims a $900 lifetime learning credit and the tax liability after credits is $680.
Whether you will benefit from applying a scholarship or fellowship grant to nonqualified expenses will depend on the amount of the student's qualified education expenses, the amount of the scholarship or fellowship grant, and whether the scholarship or fellowship grant may (by its terms) be used for nonqualified expenses. Any benefit will also depend on the student's federal and state marginal tax rates as well as any federal and state tax credits the student claims. Before deciding, look at the total amount of your federal and state tax refunds or taxes owed and, if the student is your dependent, the student's tax refunds or taxes owed. For example, if you are the student and you also claim the earned income credit, choosing to apply a scholarship or fellowship grant to nonqualified expenses by including the amount in your income may not benefit you if the decrease to your earned income credit as a result of including the scholarship or fellowship grant in income is more than the increase to your lifetime learning credit as a result of including this amount in income.
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).
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.
If you claim on your tax return an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Include these expenses when figuring the amount of your lifetime learning credit.
If you claim a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. If neither you nor anyone else claims the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit.
If anyone, such as Todd's parents, claims Todd on their 2022 tax return, whoever claims Todd may be able to use the expenses to claim a lifetime learning credit. If anyone else claims Todd, Todd can't claim a lifetime learning 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. The maximum amount of lifetime learning credit you can claim for 2022 is $2,000 (20% $10,000). However, that amount may be reduced based on your MAGI. See Effect of the Amount of Your Income on the Amount of Your Credit, later.
Bruce and Toni are married and file a joint tax return. For 2022, their MAGI is $75,000. Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. Toni already has a bachelor's degree in history and wants to become a nurse. In August 2022, Toni paid $5,000 of qualified education expenses for the fall 2022 semester. Bruce and Toni can claim a $1,000 (20% $5,000) lifetime learning credit on their 2022 joint tax return.
To help you figure your lifetime learning credit, the student may receive Form 1098-T. 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, 2023. An institution will report payments received (box 1) for qualified education expenses. However, the amount on Form 1098-T might be different from what you paid. When figuring the credit, use only the amounts you paid or are deemed to have paid in 2022 for qualified education expenses.
The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You can't claim a lifetime learning credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).
You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). The result is a $1,320 (20% x $6,600) tentative credit.
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. The numerator (top part) of the fraction is $180,000 (the upper limit for those filing a joint return) minus your MAGI. The denominator (bottom part) is $20,000, the range of incomes for the phaseout ($160,000 to $180,000). The result is the amount of your phased-out (reduced) lifetime learning credit ($1,254).
The American opportunity or lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses aren't used for both benefits. This means the beneficiary must reduce qualified higher education expenses (QHEE) by tax-free educational assistance, and then further reduce them by any expenses taken into account in determining an American opportunity or lifetime learning credit. 59ce067264
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