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 2007. 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.
You cannot claim the Lifetime
Learning Credit on your tax return if you are subject to the phase out because of the amount
of your income. The Lifetime Learning Credit is phased out as modified AGI rises from
$90,000 to $110,000
for joint tax return filers ($45,000 to $55,000 for single tax
return filers).
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exclude from income amounts withdrawn from Education IRAs that are used to pay the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.
