The Lifetime Learning Tax Credit is an IRS-driven tax deduction for students pursuing a degree. It is similar to the HOPE Education Tax Credit, with the major distinctions being a lower credit amount and more flexibility in terms of eligibility.
Unlike the HOPE Tax Credit, students can claim the credit beyond the first two years of their studies. The credit is not limited to a specified amount of years spent studying, but the maximum amount that one can claim is $2,000 for the entirety of their educational career.
The tax credit works like this: the tax filer is allowed to write off 20% of the first $10,000 spent on “qualifying tuition or related expenses”. These so-called “qualifying expenses” are limited to tuition and directly related expenses, and do not cover things such as books, lab equipment, room and board or athletic fees.
To claim the full credit, the tax filer must make less than $47,000 (for single filers) or $94,000 (for married filing joint). The credit is then phased out gradually until the maximum income is reached. Currently, the maximum income is set to $57,000 (single) or $114,000 (married).
Furthermore, the credit can only be offset against out-of-pocket expenses and cannot be deducted against scholarship funds or family contributions. The student must be enrolled in at least one course, and cannot be a nonresident alien. To claim the Lifetime Learning Tax Credit, simply submit Form 8863 along with the 1040 or 1040A tax return for the applicable year.