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Taxact 3. Taxact   Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. Taxact They are the American opportunity credit and the lifetime learning credit. Taxact This chapter discusses the lifetime learning credit. Taxact The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . Taxact This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. Taxact What is the tax benefit of the lifetime learning credit. Taxact   For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. Taxact There is no limit on the number of years the lifetime learning credit can be claimed for each student. Taxact   A tax credit reduces the amount of income tax you may have to pay. Taxact Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. Taxact The lifetime learning credit is a nonrefundable credit. Taxact This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. Taxact   Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. Taxact Can you claim more than one education credit this year. Taxact   For each student, you can elect for any year only one of the credits. Taxact For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. Taxact   If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. Taxact   If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. Taxact This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Taxact Differences between the American opportunity and lifetime learning credits. Taxact   There are several differences between these two credits. Taxact For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. Taxact However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. Taxact The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. Taxact Overview of the lifetime learning credit. Taxact   See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. Taxact The details are discussed in this chapter. Taxact Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. Taxact Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. Taxact You pay qualified education expenses of higher education. Taxact You pay the education expenses for an eligible student. Taxact The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Taxact Table 3-1. Taxact Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. Taxact Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. Taxact “Qualified education expenses” are defined later under Qualified Education Expenses . Taxact “Eligible students” are defined later under Who Is an Eligible Student . Taxact A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . Taxact You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. Taxact Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. Taxact Your filing status is married filing separately. Taxact You are listed as a dependent on another person's tax return (such as your parents'). Taxact See Who Can Claim a Dependent's Expenses , later. Taxact Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). Taxact MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . Taxact You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. Taxact More information on nonresident aliens can be found in Publication 519. Taxact You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. Taxact What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Taxact Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. Taxact For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. Taxact Academic period. Taxact   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Taxact In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Taxact Paid with borrowed funds. Taxact   You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Taxact You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. Taxact Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. Taxact Student withdraws from class(es). Taxact   You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. Taxact Qualified Education Expenses For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. Taxact The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. Taxact Eligible educational institution. Taxact   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Taxact S. Taxact Department of Education. Taxact It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Taxact The educational institution should be able to tell you if it is an eligible educational institution. Taxact   Certain educational institutions located outside the United States also participate in the U. Taxact S. Taxact Department of Education's Federal Student Aid (FSA) programs. Taxact Related expenses. Taxact   Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. Taxact Prepaid expenses. Taxact   Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. Taxact See Academic period , earlier. Taxact For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Taxact You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Taxact In the following examples, assume that each student is an eligible student at an eligible educational institution. Taxact Example 1. Taxact   Jackson is a sophomore in University V's degree program in dentistry. Taxact This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Taxact Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. Taxact Example 2. Taxact   Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. Taxact The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Taxact Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Taxact Donna bought hers at College W's bookstore. Taxact Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. Taxact Example 3. Taxact   When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. Taxact This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. Taxact No portion of the fee covers personal expenses. Taxact Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. Taxact Therefore, it is a qualified expense. Taxact No Double Benefit Allowed You cannot do any of the following: Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses. Taxact Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. Taxact Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. Taxact Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Taxact See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. Taxact Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. Taxact See Adjustments to Qualified Education Expenses, next. Taxact This image is too large to be displayed in the current screen. Taxact Please click the link to view the image. Taxact Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. Taxact The result is the amount of adjusted qualified education expenses for each student. Taxact Tax-free educational assistance. Taxact   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Taxact See Academic period , earlier. Taxact   Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Taxact This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Taxact   If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. Taxact If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. Taxact   Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Taxact Generally, any scholarship or fellowship is treated as tax free. Taxact However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. Taxact The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Taxact The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Taxact You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. Taxact For examples, see Coordination with Pell grants and other scholarships, later. Taxact Refunds. Taxact   A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. Taxact Some tax-free educational assistance received after 2013 may be treated as a refund. Taxact See Tax-free educational assistance , earlier. Taxact Refunds received in 2013. Taxact   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Taxact Refunds received after 2013 but before your income tax return is filed. Taxact   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. Taxact Refunds received after 2013 and after your income tax return is filed. Taxact   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. Taxact See Credit recapture, next. Taxact Credit recapture. Taxact    If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Taxact You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Taxact You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Taxact Include that amount as an additional tax for the year the refund or tax-free assistance was received. Taxact Example. Taxact   You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. Taxact You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. Taxact You claimed no other tax credits. Taxact After you filed your return, your child withdrew from two courses and you received a refund of $2,900. Taxact You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. Taxact The refigured credit is $1,280 and your tax liability increased by $580. Taxact See instructions for your 2014 income tax return to determine where to include this tax. Taxact If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Taxact Amounts that do not reduce qualified education expenses. Taxact   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Taxact   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Taxact The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Taxact The use of the money is not restricted. Taxact For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. Taxact Coordination with Pell grants and other scholarships. Taxact   In some cases, you may be able to reduce your tax liability by including scholarships in income. Taxact If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. Taxact The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. Taxact Example 1—No scholarship. Taxact Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. Taxact Her AGI and her MAGI, for purposes of the credit, are $27,000. Taxact Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. Taxact She claims no credits other than the lifetime learning credit. Taxact In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. Taxact Judy and the college meet all requirements for the lifetime learning tax credit. Taxact She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. Taxact She claims a $900 lifetime learning credit and her tax after credits is $1,256. Taxact Example 2—Scholarship excluded from income. Taxact The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. Taxact Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. Taxact If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. Taxact Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. Taxact Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. Taxact Example 3—Scholarship included in income. Taxact The facts are the same as in Example 2—Scholarship excluded from income. Taxact If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. Taxact Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. Taxact She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. Taxact Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. Taxact Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. Taxact This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. Taxact Sports, games, hobbies, and noncredit courses. Taxact   Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. Taxact However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. Taxact Comprehensive or bundled fees. Taxact   Some eligible educational institutions combine all of their fees for an academic period into one amount. Taxact If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. Taxact The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. Taxact See Figuring the Credit , later, for more information about Form 1098-T. Taxact Who Is an Eligible Student For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). Taxact Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year. Taxact For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. Taxact You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. Taxact IF you. Taxact . Taxact . Taxact THEN only. Taxact . Taxact . Taxact claim an exemption on your tax return for a dependent who is an eligible student you can claim the lifetime learning credit based on that dependent's expenses. Taxact The dependent cannot claim the credit. Taxact do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the lifetime learning credit. Taxact You cannot claim the credit based on this dependent's expenses. Taxact Expenses paid by dependent. Taxact   If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. Taxact Include these expenses when figuring the amount of your lifetime learning credit. Taxact    Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. Taxact Expenses paid by you. Taxact   If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. Taxact If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. Taxact Expenses paid by others. Taxact   Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. Taxact In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. Taxact If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. Taxact Example. Taxact In 2013, Ms. Taxact Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. Taxact For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. Taxact Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. Taxact If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. Taxact If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. Taxact Tuition reduction. Taxact   When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. Taxact If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. Taxact For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Taxact Figuring the Credit The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. Taxact The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). Taxact However, that amount may be reduced based on your MAGI. Taxact See Effect of the Amount of Your Income on the Amount of Your Credit , later. Taxact Example. Taxact Bruce and Toni Harper are married and file a joint tax return. Taxact For 2013, their MAGI is $75,000. Taxact Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. Taxact She already has a bachelor's degree in history and wants to become a nurse. Taxact In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. Taxact Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. Taxact Form 1098-T. Taxact   To help you figure your lifetime learning credit, the student should receive Form 1098-T. Taxact Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. Taxact An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. Taxact However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. Taxact When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. Taxact   In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. Taxact    The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. Taxact Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). Taxact You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). Taxact Modified adjusted gross income (MAGI). Taxact   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Taxact MAGI when using Form 1040A. Taxact   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Taxact MAGI when using Form 1040. Taxact   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Taxact You can use Worksheet 3-1 to figure your MAGI. Taxact Worksheet 3-1. Taxact MAGI for the Lifetime Learning Credit 1. Taxact Enter your adjusted gross income  (Form 1040, line 38)   1. Taxact   2. Taxact Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Taxact       3. Taxact Enter your foreign housing deduction (Form 2555, line 50)   3. Taxact       4. Taxact Enter the amount of income from Puerto Rico you are excluding   4. Taxact       5. Taxact Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Taxact       6. Taxact Add the amounts on lines 2, 3, 4, and 5   6. Taxact   7. Taxact Add the amounts on lines 1 and 6. Taxact  This is your modified adjusted  gross income. Taxact Enter this amount  on Form 8863, line 14   7. Taxact   Phaseout. Taxact   If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. Taxact The same method is shown in the following example. Taxact Example. Taxact You are filing a joint return with a MAGI of $112,000. Taxact In 2013, you paid $6,600 of qualified education expenses. Taxact You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). Taxact The result is a $1,320 (20% x $6,600) tentative credit. Taxact Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. Taxact The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. Taxact The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). Taxact The result is the amount of your phased out (reduced) lifetime learning credit ($990). Taxact   $1,320 × $127,000 − $112,000  $20,000 = $990   Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. Taxact Enter the credit on Form 1040, line 49, or Form 1040A, line 31. Taxact Note. Taxact In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. Taxact Prev  Up  Next   Home   More Online Publications
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    Did you know that digital copiers store what you've copied on a hard drive that if not wiped clean, can be retrieved when that copier is re-sold or junked after it is no longer useful to the company? It is scary to think about how much personal and company data could be on your organization's copier hard drive. Fortunately, there are some ways you can try to protect that information.
  • Fraudsters Claim a Red Cross Connection in New Phishing Scam
    The Federal Trade Commission is warning consumers about a scam targeting families of military members. A caller, claiming to work for the Red Cross, notifies an individual that their family member has been injured while on duty. To get immediate aid to the injured service member, the caller says, paperwork must be completed, and personal information must be verified.
  • FTC Cautions Consumers About Voter Registration Scams
    Have you received an unsolicited e-mail or phone call from someone who claims to represent your local election board or civic group and asks for your Social Security or credit card number to confirm your eligibility or registration to vote? According to the Federal Trade Commission scammers may send messages asking for your Social Security number or financial information supposedly to register you to vote -- or to confirm your registration -- when they really want to commit identity theft.
  • FTC Issues Alert about Identity Theft Scam -- Spammers Pose as Federal Government Operation
    A new Spam Scam Alert from the Federal Trade Commission could help consumers avoid becoming identity theft victims. The Alert, Someone Is Phishing For Your Information, warns that consumers may receive e-mails that claim to be from regulations.gov, a government Web site where consumers can comment on federal rule-making. The e-mails' subject lines typically read, "Official information," information.
  • OnGuardOnline.gov Urges Taxpayers to Contact the IRS If They Suspect Tax-Related Identity Theft
    OnGuardOnline.gov is informing consumers that an unexpected message from the Internal Revenue Service (IRS) could be a warning sign that their Social Security number is being misused by an identity thief.
  • Tips to Avoid Being Scammed This Holiday Season
    As the holidays approach, the FBI reminds the public to use caution when making online purchases. Cyber criminals continue to create ways to steal your money and personal information. If a deal looks too good to be true, it likely is. Here are some tips you can use to avoid becoming a victim of cyber fraud.

The Taxact

Taxact Index , Hardest Hit Fund and Emergency Homeowners' Loan Programs. Taxact , Form 1098. Taxact , How To Report, Form 1098. Taxact A Acquisition debt, Fully deductible interest. Taxact , Home Acquisition Debt, Part of home not a qualified home. Taxact Alimony, Divorced or separated individuals. Taxact Amortization Points, General Rule Appraisal fees, Amounts charged for services. Taxact Armed forces Housing allowance, Ministers' and military housing allowance. Taxact Assistance (see Tax help) Average mortgage balance, Average Mortgage Balance B Borrowers More than one, More than one borrower. Taxact Seller-paid points, treatment by buyer, Treatment by buyer. Taxact Business Average mortgage balance, total amount of interest otherwise allowable to each activity, Line 13 Mortgage proceeds used for, Mortgage proceeds used for business or investment. Taxact C Clergy Ministers' and military housing allowance, Ministers' and military housing allowance. Taxact Cooperative housing, Cooperative apartment owner. Taxact , Cooperative apartment owner. Taxact , Special Rule for Tenant-Stockholders in Cooperative Housing Corporations, Form 1098. Taxact Cost of home or improvements, Cost of home or improvements. Taxact Credits, Mortgage interest credit. Taxact D Date of mortgage, Date of the mortgage. Taxact Debt Choice to treat as not secured by home, Choice to treat the debt as not secured by your home. Taxact Grandfathered, Fully deductible interest. Taxact , Grandfathered Debt, Line-of-credit mortgage. Taxact Home acquisition, Fully deductible interest. Taxact , Home Acquisition Debt Home equity, Fully deductible interest. Taxact , Home Equity Debt Home equity only (Table 1), Home equity debt only. Taxact Not secured by home, Debt not secured by home. Taxact Secured, Secured Debt Deductions, Part I. Taxact Home Mortgage Interest, Hardest Hit Fund and Emergency Homeowners' Loan Programs. Taxact Home office, Office in home. Taxact Mortgage insurance premiums, Claiming your deductible mortgage insurance premiums. Taxact Points, General Rule, Claiming your deductible points. Taxact Deed preparation costs, Amounts charged for services. Taxact Divorced taxpayers, Divorced or separated individuals. Taxact , Acquiring an interest in a home because of a divorce. Taxact E Emergency Homeowners' Loan Program, Hardest Hit Fund and Emergency Homeowners' Loan Programs. Taxact Equity debt, Fully deductible interest. Taxact , Home Equity Debt, Fair market value (FMV). Taxact Equity debt only (Table 1), Home equity debt only. Taxact F Fair market value (FMV), Fair market value (FMV). Taxact Fees Appraisal, Amounts charged for services. Taxact Notaries, Amounts charged for services. Taxact Points (see Points) Figures (see Tables and figures) Form 1040, Schedule A, How To Report, Table 2. Taxact Where To Deduct Your Interest Expense Form 1040, Schedule C or C-EZ, Table 2. Taxact Where To Deduct Your Interest Expense Form 1040, Schedule E, Table 2. Taxact Where To Deduct Your Interest Expense Form 1040, Schedule F, Table 2. Taxact Where To Deduct Your Interest Expense Form 1098, Form 1098, Mortgage Interest Statement Mortgage insurance premiums, Form 1098. Taxact Form 8396, Mortgage interest credit. Taxact Free tax services, Free help with your tax return. Taxact G Grandfathered debt, Fully deductible interest. Taxact , Grandfathered Debt, Line-of-credit mortgage. Taxact Ground rents, Redeemable ground rents. Taxact H Hardest Hit Fund Program, Hardest Hit Fund and Emergency Homeowners' Loan Programs. Taxact Help (see Tax help) Home, Publication 936 - Introductory Material Acquisition debt, Fully deductible interest. Taxact , Home Acquisition Debt Construction, Home under construction. Taxact Cost of, Cost of home or improvements. Taxact Destroyed, Home destroyed. Taxact Divided use, Divided use of your home. Taxact , Part of home not a qualified home. Taxact , Part of home not a qualified home. Taxact Equity debt, Fully deductible interest. Taxact , Home Equity Debt Equity debt only (Table 1), Home equity debt only. Taxact Fair market value, Fair market value (FMV). Taxact Grandfathered debt, Fully deductible interest. Taxact , Grandfathered Debt, Line-of-credit mortgage. Taxact Improvement loan, points, Home improvement loan. Taxact Main, Main home. Taxact Office in, Office in home. Taxact Qualified, Qualified Home Renting out part of, Renting out part of home. Taxact Sale of, Sale of home. Taxact Second, Second home. Taxact Time-sharing arrangements, Time-sharing arrangements. Taxact Housing allowance Ministers and military, Ministers' and military housing allowance. Taxact I Improvements Cost of, Cost of home or improvements. Taxact Home acquisition debt, Mortgage treated as used to buy, build, or improve home. Taxact Points, Home improvement loan. Taxact Substantial, Substantial improvement. Taxact Interest, Part I. Taxact Home Mortgage Interest (see also Mortgage interest) Interest rate method, Interest paid divided by interest rate method. Taxact Refunded, Refunds of interest. Taxact , Refunded interest. Taxact Where to deduct, Table 2. Taxact Where To Deduct Your Interest Expense Investments Average mortgage balance and total amount of interest allowable, Line 13 Mortgage proceeds used for, Mortgage proceeds invested in tax-exempt securities. Taxact , Mortgage proceeds used for business or investment. Taxact J Joint returns, Married taxpayers. Taxact L Lender mortgage statements, Statements provided by your lender. Taxact Limits Cooperative housing, mortgage interest deduction, Limits on deduction. Taxact Deductibility of mortgage insurance premiums, Limit on deduction. Taxact Deductibility of points, Limits on deduction. Taxact Home acquisition debt, Home acquisition debt limit. Taxact Home equity debt, Home equity debt limit. Taxact Home mortgage interest deduction, Form 1098. Taxact Qualified loan limit, Table 1. Taxact Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Taxact , Average Mortgage Balance Line-of-credit mortgage, Line-of-credit mortgage. Taxact Loans, Mortgage proceeds used for business or investment. Taxact , Mortgage treated as used to buy, build, or improve home. Taxact (see also Mortgages) Home improvement, points, Home improvement loan. Taxact Qualified loan limit, Table 1. Taxact Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Taxact M Main home, Main home. Taxact Married taxpayers, Married taxpayers. Taxact Military housing allowance, Ministers' and military housing allowance. Taxact Ministers' housing allowance, Ministers' and military housing allowance. Taxact Missing children, photographs of, Reminders Mixed-use mortgages, Mixed-use mortgages. Taxact Mortgage insurance premiums Claiming deductible, Claiming your deductible mortgage insurance premiums. Taxact Mortgage interest, Publication 936 - Introductory Material, Part I. Taxact Home Mortgage Interest Cooperative housing, Figuring deductible home mortgage interest. Taxact Credit, Mortgage interest credit. Taxact Fully deductible interest, Fully deductible interest. Taxact Home mortgage interest, Part I. Taxact Home Mortgage Interest, Hardest Hit Fund and Emergency Homeowners' Loan Programs. Taxact How to report, How To Report Late payment charges, Late payment charge on mortgage payment. Taxact Limits on deduction, Part II. Taxact Limits on Home Mortgage Interest Deduction Ministers' and military housing allowance, Ministers' and military housing allowance. Taxact Prepaid interest, Prepaid interest. Taxact , Prepaid interest on Form 1098. Taxact Prepayment penalty, Mortgage prepayment penalty. Taxact Refunds, Refunds of interest. Taxact , Refunded interest. Taxact Sale of home, Sale of home. Taxact Special situations, Special Situations Statement, Form 1098, Mortgage Interest Statement Where to deduct, Table 2. Taxact Where To Deduct Your Interest Expense Worksheet to figure (Table 1), Table 1. Taxact Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Taxact Mortgages Assistance payments (under sec. Taxact 235 of National Housing Act), Mortgage assistance payments under section 235 of the National Housing Act. Taxact Average balance, Average Mortgage Balance Date of, Date of the mortgage. Taxact Ending early, Mortgage ending early. Taxact Late qualifying, Mortgage that qualifies later. Taxact Line-of-credit, Line-of-credit mortgage. Taxact Mixed-use, Mixed-use mortgages. Taxact Preparation costs for note or deed of trust, Amounts charged for services. Taxact Proceeds invested in tax-exempt securities, Mortgage proceeds invested in tax-exempt securities. Taxact Proceeds used for business, Mortgage proceeds used for business or investment. Taxact Proceeds used for investment, Mortgage proceeds used for business or investment. Taxact Qualified loan limit, Table 1. Taxact Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Taxact , Average Mortgage Balance Refinanced, Refinancing. Taxact , Refinanced home acquisition debt. Taxact , Refinanced grandfathered debt. Taxact Reverse, Reverse mortgages. Taxact Statements provided by lender, Statements provided by your lender. Taxact To buy, build, or improve, Mortgage treated as used to buy, build, or improve home. Taxact Wraparound, Wraparound mortgage. Taxact N Nonredeemable ground rents, Nonredeemable ground rents. Taxact Notary fees, Amounts charged for services. Taxact O Office in home, Office in home. Taxact P Penalties Mortgage prepayment, Mortgage prepayment penalty. Taxact Points, Points, Deduction Allowed in Year Paid, Form 1098. Taxact Claiming deductible, Claiming your deductible points. Taxact Exception to general rule, Deduction Allowed in Year Paid Excess, Excess points. Taxact Funds provided less than, Funds provided are less than points. Taxact General rule, General Rule Home improvement loans, Home improvement loan. Taxact Seller paid, Points paid by the seller. Taxact Prepaid interest, Prepaid interest. Taxact , Prepaid interest on Form 1098. Taxact Prepayment penalties, Mortgage prepayment penalty. Taxact Publications (see Tax help) Q Qualified homes, Qualified Home Qualified loan limit Average mortgage balance, Average Mortgage Balance Worksheet to figure (Table 1), Table 1. Taxact Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Taxact R Redeemable ground rents, Redeemable ground rents. Taxact Refinancing, Refinancing. Taxact Grandfathered debt, Refinanced grandfathered debt. Taxact Home acquisition debt, Refinanced home acquisition debt. Taxact Refunds, Refunds of interest. Taxact , Refunded interest. Taxact Rent Nonredeemable ground rents, Nonredeemable ground rents. Taxact Redeemable ground rents, Redeemable ground rents. Taxact Rental payments, Rental payments. Taxact Renting of home Part of, Renting out part of home. Taxact Time-sharing arrangements, Rental of time-share. Taxact Repairs, Substantial improvement. Taxact Reverse Mortgages, Reverse mortgages. Taxact S Sale of home, Sale of home. Taxact Second home, Second home. Taxact , Deduction Allowed in Year Paid Secured debt, Secured Debt Seller-paid points, Points paid by the seller. Taxact Separate returns, Separate returns. Taxact Separated taxpayers, Divorced or separated individuals. Taxact Spouses, Married taxpayers. Taxact Statements provided by lender, Statements provided by your lender. Taxact Stock Cooperative housing, Stock used to secure debt. Taxact T Tables and figures Deductible home mortgage interest Fully deductible, determination of (Figure A), Fully deductible interest. Taxact How to figure (Table 1), Table 1. Taxact Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Taxact Mortgage to buy, build, or improve home (Figure C), Mortgage treated as used to buy, build, or improve home. Taxact Points (Figure B), Points Qualified loan limit worksheet (Table 1), Table 1. Taxact Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Taxact Tax credits, Mortgage interest credit. Taxact Tax help, How To Get Tax Help Tax-exempt securities Mortgage proceeds invested in, Mortgage proceeds invested in tax-exempt securities. Taxact Time-sharing arrangements, Time-sharing arrangements. Taxact V Valuation Fair market value, Fair market value (FMV). Taxact W Worksheets Deductible home mortgage interest, Table 1. Taxact Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Taxact Qualified loan limit, Table 1. Taxact Worksheet To Figure Your Qualified Loan Limit and Deductible Home Mortgage Interest For the Current Year See the Table 1 Instructions. Taxact Wraparound mortgages, Wraparound mortgage. Taxact Prev  Up     Home   More Online Publications