Can I deduct the Lifetime Learning Credit for college expenses on my tax return?

With higher education costs climbing steadily upward nearly 8% per year many families are particularly concerned about accumulating enough money to put their children through college. College cost projections are continually increasing. Based on the latest averages from The College Board and recent average annual college cost increases, a child who entered kindergarten in 1995 will face four-year college costs of nearly $100,000 if he or she chooses to attend a public college in 2010. For a private college, costs will probably be double that.

The Lifetime Learning Credit is available for qualified tuition and related expenses (i.e., tuition and fees, but not room and board or books) incurred at any time during the tax year, and equals 20% of up to $10,000 of college expenses. For purposes of the Lifetime Learning Credit, qualified education expenses include expenses with respect to any course of instruction at a qualified education institution to acquire or improve an individual's job skills. Thus, the Lifetime Learning Credit is available for both undergraduate and graduate-level course work, as well as course work that improves job skills. With certain exceptions, expenses paid with tax-exempt education assistance (generally, expenses paid with grants or scholarships) do not qualify for the Lifetime Learning Credit. However, qualified expenses paid with loan proceeds are eligible for the Lifetime Learning Credit.

In the case of a dependent, if the Lifetime Learning Credit is claimed by a taxpayer other than the student (e.g., a parent), the dependent student may not claim the Lifetime Learning Credit, and the taxpayer is treated as paying all eligible expenses for the tax year for Lifetime Learning Credit purposes. The maximum annual Lifetime Learning Credit is $2,000.

As an alternative to the Lifetime Learning Credit, eligible taxpayers may elect to exclude from income amounts withdrawn from Education IRAs that are used to pay the taxpayer's, spouse's, or dependent's qualified education expenses. The income exclusion is not available in any tax year that a Lifetime Learning Credit is elected with respect to a student.

Figure you Lifetime Learning Credit on Form 8863.

 Related tax information about the Lifetime Learning Credit
Academic Scholarships
Educational Assistance Exclusion
Education IRAs
Hope Credit
Qualified Tuition Programs
Student Loan Interest Deduction
U.S. Savings Bond Tuition Plans
Tax Credits
IRS publications about the Lifetime Learning Credit:
For further information refer to IRS Publication 970, Tax Benefits for Higher Education; IRS Publication 508, Educational Expenses;  IRS Publication 1577, Applying for Educational Financial Aid; and IRS Publication 520, Scholarships and Fellowships. Also see IRS Publication 17, Your Federal Income Tax.
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