Funding for Higher Education (Part III)
7/5/2004
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3. Lifetime Learning Credit
Lifetime Learning Credit is another income tax credit that is available for an amount equal to 20% of qualified tuition and related expenses paid during a taxable year up to $10,000 ($5,000 for taxable years before 2003).
That is to say, Lifetime Learning Credit allows a maximum credit of up to $2,000 per year starting from 2003 ($1,000 before 2003). But the current tax law does not let it be indexed for inflation (Recall from last week’s discussion that Hope credit is indexed for inflation).
Different from Hope Scholarship Credit that we discussed last week, Lifetime Learning Credit is for higher education after the first two years’ college education cost. That will include even graduate study’s qualified cost or any course of instruction at an eligible educational institution to acquire or improve job skills.
Also different from the Hope credit, Lifetime credit does not impose a “half-time student” requirement for the courses. One can take as little as one course and still be eligible for the Lifetime credit.
Yet another major difference between the two educational credits: Hope credit is available based on each qualified student. Lifetime credit is available based on taxpayer. One taxpayer can only enjoy up to $2,000 Lifetime credit per year regardless of how many qualified students the family has.
Lifetime credit’s phase-out limit which is based on the taxpayer’s modified adjusted gross income is the same as that of the Hope credit. If a student qualifies for both credits in the same year, the taxpayer can claim either credit, but not both in the same year.
Tax credit generally saves more taxes when comparing with deductions. However, we will show you next time that under certain circumstances the deduction, namely College Expense Deduction, could be more powerful than Hope or Lifetime credits.
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