Federal Tax Credits Help Working Adults Return to the Classroom

Last week we discussed the benefits of the American Opportunity Tax Credit (or modified Hope Credit, this week we are going to take a look at the Lifetime Learning Credit.

This federal tax credit will probably apply to a larger number of individuals as it is much more flexible. You aren’t required to be a part time student nor in your first four years of college or in a degree program, but you DO need taxable income for this credit to matter.

“Change does not necessarily assure progress, but progress implacably requires change. Education is essential to change, for education creates both new wants and the ability to satisfy them.” –Henry Steele Commager

The Goods – Part 2

The Lifetime Learning Credit of up to $2,000 per tax return is available for qualified education expenses paid for all enrolled students. Up to $4,000, if you happen to live in a Midwestern disaster area.

Highlights:

• Covers 20% of the first $10,000 in qualified education expenses (max. $2,000) or 40% for Midwest Disaster Area each year
• Degree status is not important
• There is no limit on the number of years the lifetime learning credit can be claimed for each student
• Only tuition and fees qualify
• Taxpayer may use payments made by dependents for the credit
• The amount of your lifetime learning credit for 2009 is gradually reduced (phased out) if or your modified adjusted gross income (MAGI) is between $50,000 and $60,000 ($100,000 and $120,000 if you file a joint return)
• This credit is applied per tax return NOT per student

Qualifications:

• You pay qualified education expenses of higher education
• You pay the education expenses for an eligible student
• The eligible student is either yourself, your spouse or a dependent for whom you claim an exemption on your tax return

On a side note: If you’re eligible to claim the lifetime learning credit and are also eligible to claim the Hope or American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both.  However, if you have more than one student you can opt to take credits based on a per-student, per-year basis.

You cannot claim a credit if your MAGI is $60,000 or more ($120,000 or more if you file a joint return.)

So what if you don’t qualify for either of these two tax credits? Well, then  you will want to check out next week’s post covering the Tuition and Fees Deduction allowance.