How Is the Credit Figured?

The amount of the lifetime learning credit is 20% of the first $5,000 of qualified tuition and related expenses you paid for all eligible students. The maximum amount of lifetime learning credit you can claim for 2000 is $1,000 (20% x $5,000). However, that amount may be reduced based on your modified adjusted gross income. See Does Income Affect the Amount of the Credit, later.

Example. Bruce and Toni are married and file a joint tax return. For 2000, their modified adjusted gross income is $50,000. Toni is attending the community college (an eligible educational institution) to earn credits toward an associate's degree in nursing; she already has a bachelor's degree in history and wants to become a nurse. In August 2000, Toni paid $2,000 for her fall 2000 semester. Bruce and Toni can claim a $400 (20% x $2,000) lifetime learning credit on their 2000 joint tax return.

Does Income Affect the Amount of the Credit?

The amount of your lifetime learning credit is phased out (gradually reduced) if your modified adjusted gross income is between $40,000 and $50,000 ($80,000 and $100,000 if you file a joint return). You cannot claim a lifetime learning credit if your modified gross income is $50,000 or more ($100,000 or more if you file a joint return).

Modified adjusted gross income. For most taxpayers, modified adjusted gross income will be their adjusted gross income (AGI) as figured on their federal income tax return. On Form 1040, AGI is line 33. On Form 1040A, AGI is line 19. However, you must modify your AGI if you excluded income earned abroad or from certain U.S. territories or possessions. If this applies to you, increase your AGI by the following amounts you excluded from your income.

1. Foreign earned income of U.S. citizens or residents living abroad.
2. Housing costs of U.S. citizens or residents living abroad.
3. Income from sources within Puerto Rico, Guam, American Samoa, or the Northern Mariana Islands.

How the phaseout works. The phaseout (reduction) works on a sliding scale. The higher your modified adjusted gross income, the more your credit is reduced. The phaseout, if any, is figured when you complete Part III of Form 8863.

Previous| First | Next

Publication Index | IRS-Forms Main | Home