Lifetime Learning Tax Credit:

The Lifetime Learning Credit is targeted for adults who want to go back to school, change careers, or take a course to upgrade their skills. It is also available to juniors, seniors, graduate, and professional degree students. This is a tax credit, not a "deduction" or a way to reduce income, but rather a way to reduce the taxes a family owes. Therefore a family must file a federal tax return and owe taxes to claim this credit.

The credit is equal to 20% of the taxpayer's out-of-pocket expenses for qualified tuition and related expenses of all eligible family members, up to a maximum of $10,000 in expenses annually. Thus, the maximum Lifetime Learning Credit a taxpayer may claim is $2,000 per year. The maximum credit does not change even if the taxpayer is claiming a credit for the expenses of more than one student in the family.

The qualified tuition and related expenses must be for the students in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or eligible dependents), who are enrolled in eligible educational institutions. Credit is calculated on a per family basis, rather than a per student basis. Therefore, the maximum available credit does not vary with the number of students in the family. Families will be able to claim the Lifetime Learning tax credit for some members of their family and the "HOPE Scholarship" tax credit for others who qualify in the same year.

It is phased out at the same income levels as the "HOPE Scholarship" tax credit - modified for adjusted gross income between $42,000 and $52,000 if single or between $85,000 and $105,000 if married. Taxpayers with modified adjusted gross income over $52,000 ($105,000 for married taxpayers filing jointly) may not claim a Lifetime Learning Credit. Both the dollar limitations on the expenses for which the credit may be claimed and the modified adjusted gross income limitation will be indexed for inflation annually.

The individual paying qualified tuition and related expenses at a postsecondary educational institution, or graduate school, may claim the credit as long as the institution is an eligible educational institution. The student may be the taxpayer him/herself, and/or the taxpayer's spouse, and/or the taxpayer's other eligible dependents (including children) for whom the dependency exemption is claimed. Generally, a parent may claim the dependency exemption for his/her unmarried child if the parent supplies more than half the child's support for the taxable year, AND the child is under age 19 or the child is a full-time student under age 24.

The parent may claim the credit on his/her federal income tax return even if the child files his/her own tax return. When a child is claimed as a dependent on the parent's return, any qualified tuition and related expenses paid by the child during the year are treated as if the parent had paid them and, therefore, are included in calculating the parent's Lifetime Learning Credit. A child may not claim a Lifetime Learning Credit on his/her tax return for any year that he/she is claimed as a dependent.

Unlike the Hope Scholarship Credit, there is no limit to the number of years in which a lifetime Learning Credit may be claimed for each student. Thus, for example, an individual who enrolls in one college-level class every year would be able to claim the Lifetime Learning Credit for an unlimited number of years, provided the individual meets the income limits and is taking the classes at institutions that meet the eligibility requirements. This credit also differs from the Hope Scholarship Credit because the felony drug conviction rule does NOT apply.