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.
- Foreign earned income of U.S. citizens or residents living
abroad.
- Housing costs of U.S. citizens or residents living
abroad.
- 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.
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