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Publication 970 2001 Tax Year

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 2001 is $1,000 (20% × $5,000). However, that amount may be reduced based on your modified adjusted gross income. See Does the Amount of Your Income Affect the Amount of Your Credit, later.

Example 1. Bruce and Toni are married and file a joint tax return. For 2001, 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 2001, Toni paid $4,000 for her fall 2001 semester. Bruce and Toni can claim an $800 (20% × $4,000) lifetime learning credit on their 2001 joint tax return.


Does the Amount of Your Income Affect the Amount of Your 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).

The phaseout, if any, can be figured in Part III of Form 8863 or as shown in Example 2.

Example 2. The information is the same as in Example 1 above, except that Bruce and Toni have a modified adjusted gross income of $88,000.

They figure the total tentative lifetime learning credit (20% of the first $5,000 of qualified expenses they paid for all eligible students). As shown above, the result is an $800 (20% x $4,000) total tentative credit.

To figure their allowable credit, they multiply the tentative credit ($800) by a fraction. Because they are filing a joint return, the numerator of the fraction is $100,000 minus their modified adjusted gross income and the denominator is $20,000. The result is the amount of their lifetime learning credit.

  $800 × $100,000 - $88,000
------------------------------
$20,000 		= $480  

Modified adjusted gross income. For most taxpayers, modified adjusted gross income (MAGI) is adjusted gross income (AGI) as figured on their federal income tax return.

MAGI when using Form 1040A. If you file Form 1040A, your MAGI is the AGI on line 19 of that form.

MAGI when using Form 1040. If you file Form 1040, your MAGI is the AGI on line 33 of that form, modified by adding back any:

  1. Foreign earned income exclusion,
  2. Foreign housing exclusion,
  3. Exclusion of income for bona fide residents of American Samoa, and
  4. Exclusion of income from Puerto Rico.

Worksheet 2-1, can be used to figure your MAGI.

Worksheet 2-1. MAGI for the Lifetime Learning Credit

1. Enter your adjusted gross income (Form 1040, line 33). 1. $
2. Enter your foreign earned income exclusion (Form 2555, line 40, or Form 2555-EZ, line 18). 2. $  
3. Enter your housing exclusion (Form 2555, line 34). 3.  
4. Enter the amount of income from Puerto Rico that you are excluding. 4.  
5. Enter the amount of income from American Samoa that you are excluding (Form 4563, line 15). 5.  
6. Add the amounts on lines 2, 3, 4, and 5. 6.
7. Add the amounts on lines 1 and 6. This is your modified adjusted gross income. Enter this amount on line 10 of your Form 8863. 7. $

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