So, what is the deal when your students come by to ask as mine did? The Lifetime Learning Tax Credit consists of a maximum of $2,000 or 20% of the qualifying education expenses. These expenses must be paid to any post-secondary education, including graduate schools, and they constitute tuition and fees, course-related books, supplies, and equipment that are required as a condition for enrollment. Even a new laptop may qualify if documentation can be provided that the school requires it! Anyone who pays -even with borrowed funds- expenses for higher education (being undergraduate or graduate education), -either for him, a spouse, or a dependent- may claim the credit. As always, there are income limitations, set at $61,000, or if filing jointly (which is required if married), $122,000.
The expenses count for the year in which they are paid, not for the academic year for which they are paid. For example, if tuition is paid in the Fall of 2012 for the Spring semester of 2013, it constitutes the expenses of 2012. Also, the expenses must be reduced by any amount paid for classes that a student withdraws, as well as for any tax-free educational assistance received such as some scholarships and fellowships. For example, if $10,000 is paid in tuition, a $2,000 credit (10,000 x .20) may qualify, assuming no other education tax credit was claimed such as the American Opportunity Credit. However, if the claimant was reimbursed for any of the previous reasons, or the student received a tax-free scholarship, the amount of expenses of $10,000 would be reduced and 20% calculated from it.
So, when they come by and complain about the high cost of law school, books and the dearth of jobs, perhaps the bright spot might be a $2000 tax incentive. Hmmm, be sure to mention it.
- JSM and Rosario Torres