During the debate on tax reform , a number of provisions were initially slated for the chopping block. Changes to popular tax breaks, like the state and local tax deduction, drew criticism from taxpayers in high-tax states, but public outcry eventually convinced lawmakers to pull back on their initial call to cut the deduction entirely.
Nontraditional students got similar good news. After fears that the Lifetime Learning Credit would be a casualty of the tax-reform effort, Congress ended up leaving the tax break untouched in the final version of its bill. That leaves the credit available for future years, and could save millions of taxpayers an average of nearly $1,000 each on their taxes.
Image source: Getty Images.What is the Lifetime Learning Credit?
Many people don"t know about the Lifetime Learning Credit because it"s the less popular of the two major education tax credits . The American Opportunity Tax Credit is the first choice for traditional college students, offering up to $2,500 in annual credits for as many as four years of undergraduate education.
However, the Lifetime Learning Credit is available in many more situations than the American Opportunity Tax Credit. In particular, you can take the Lifetime Learning Credit even if:
- You don"t meet the half-time attendance requirement for the American Opportunity Credit.
- You"re not enrolled in a formal degree program.
- You"re in graduate school, or have been an undergrad for more than four years.
- You"re getting formal training for job-related skills that aren"t covered under other credits.
The Lifetime Learning Credit plays an important role for many nontraditional students. Almost 2.5 million people claimed the credit in the most recent year for which IRS data is available, and they saved a total of almost $2.35 billion as a result. That works out to an average of $940 for each taxpayer who qualified for the credit.How much can I get?
To calculate the Lifetime Learning Credit, you need to start by adding up the educational expenses permitted under the tax provision. That includes tuition, required fees, and mandatory course materials for the classes that you"re taking. You can claim up to $10,000 in annual educational expenses at this stage.
Then, multiply your allowed expenses by 20%. That yields a maximum credit of $2,000 per year if you spend $10,000 or more on education.
Keep in mind, though, that there are income limits that apply to the Lifetime Learning Credit. For 2017 tax returns, if you have modified adjusted gross income (MAGI) of more than $56,000 as a single filer or $112,000 for joint filers, you"ll lose part of the credit. If your MAGI is above $66,000 for singles or $132,000 for joint filers, the credit disappears entirely.Be smart with your credits
The IRS doesn"t let you have two bites at the same apple when it comes to educational tax credits . If you claim the more lucrative American Opportunity Credit, then you"re not allowed to claim a Lifetime Learning Credit for the same student in the same year. What you can do is claim one credit for one student and the other credit for a different student on the same tax return. The credit maximums are per student and not per tax return.
Nevertheless, for the millions of Americans who will never be eligible for the American Opportunity Credit, the prospects of also losing the Lifetime Learning Credit because of initially proposed tax changes were maddening. With the credit having survived, it"s more important than ever to make sure you claim it if you"re eligible, and make the most of the opportunity to get some money back for what you"re investing in yourself and your future.
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