In the previous article, I introduced you to the American Opportunity Credit. This is a tax credit that replaces the old Hope Credit, and it is said that you can get tax credits up to $ 2,500 for the cost of $ 4,000, which is a very useful tax credit. Apart from this, there is another tax credit for educational expenses called Lifetime Learning Credit. I will introduce it today. Compared to American Opportunity Credit, it may be a little overshadowed, but there are cases where Lifetime Learning Credit is the only option, so I would like to know.
The size of tax credits
20% of the first $ 10,000 paid is the amount of tax credits. So up to $ 2,000. Up to $ 2,000 per tax return not per student. This means that if a couple with a joint return has more than one student, it will be up to $ 2,000 at home, not per student. This tax credit is non-refundable. The American Opportunity Credit I mentioned earlier was refundable up to $ 1,000 (that is, you can use tax credits without having to pay taxes, that is, you can get them), but Lifetime Learning Credit is tax credits. In order to receive a credit, you must have the same or more tax payable, that is, a credit that reduces the tax payable and cannot be used if there is no tax payable.
Who can use it
One of the requirements for American Opportunity Credit is attending school for degree or certification, but Lifetime Learning Credit does not. Also, American Opportunity Credit is not eligible for credit for more than 4 years, but Lifetime Learning Credit has no age limit. It also covers college, graduate classes, and work-related skill improvement courses that take more than four years. It is also applicable if you start taking it and quit halfway and cannot receive a refund.
What are the income restrictions for use?
MAGI (Modified Adjusted Gross Income: AGI plus non-US income excluded from AGI calculations and income from US territories such as Puerto Rico) is $ 57,000 or less for singles and $ 114,000 for joints (couples). Below, as mentioned above, you will receive a full credit of 20% of the cost you paid. For more MAGIs, the available credits will be gradually reduced. With $ 67,000 for singles and $ 134,000 for joints, you will have zero credits available.
What are the costs?
Tuition and other expenses at colleges , universities, vocational schools, and other higher education institutions covered by the Department of Education Student Aid . Activity fees, textbooks, equipment, equipment, etc. are eligible if they meet the “required for enrollment and attendance” requirements.
Although it is possible for self-employed people to use this credit to improve their work-related knowledge and skills, it is usually more tax-saving to record it as an Education Expense in Schedule C.
Not covered costs
The following costs are not applicable.
- Room and board (dormitory and food expenses)
- Transportation
- Insurance
- Medical expense
When is the period cut off?
Of the above fees, the fees paid by the end of the year for the semester that began in that year and the semester that began by March of the following year will be applied to the tax credits for that year. In other words, if you want to use this Lifetime Learning Credit with a tax return in 2019, you will apply the expenses paid by the end of 2019 for the semester that started from January 2019 to March 2020. can.
Advance plan is also important
As mentioned at the beginning, tax credits for education costs include American Opportunity Credit along with Lifetime Learning Credit. College fees can also be deducted instead of tax credits. Tax credits are usually better than deductions. Also, if you have been enrolled for less than 4 years, American Opportunity Credit will often give you more tax credits at a lower cost. Specifically, if you use tax software such as TurboTax, it will automatically calculate which one you get.
American Opportunity Credit, Lifetime Leaning Credit, and Education Expenses deduction (tax deduction) cannot be used at the same time for the same cost, and you must choose which one to use for the year. If you have more than one student in the same family, choose one for each student (they don’t have to be the same for siblings).
Another important condition is that in order to receive the above three tax incentives, the target costs have not already been paid from the tax incentive funds. Specifically, the above three incentives cannot be used for expenses paid from tax-friendly accounts such as the 529 Plan and Coverdell Savings Accounts. This is because they are not supposed to receive tax incentives.
The utility value of Lifetime Learning Credit
As mentioned above, American Opportunity Credit is often more efficient for college expenses within 4 years, but Lifetime Learning Credit can be used if you can’t graduate in 4 years or if you can’t graduate. If you need to study for more than 4 years (if you go to graduate school), if you are not studying for Degree or Certificate, if you are studying to improve your skills for work, and by extension, studying outside the United States (Department) It’s a good idea to keep in mind that American Opportunity Credit may be available for things that aren’t applicable, such as for Education Student Aid participating schools.
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