THE AMERICAN Opportunity Tax Credit is designed to help students pay for four years of undergraduate education. The Lifetime Learning Credit is geared toward those studying later in life: While it can be claimed for undergraduate expenses, it’s more likely to be used for graduate school or professional degree courses. There’s no limit on the number of years that you can claim the Lifetime Learning Credit.
The credit is worth up to $2,000 in 2020 and 2021. To hit the $2,000 maximum, you would need $10,000 of qualified expenses, on which you can then claim a 20% tax credit, which is how you get to $2,000. Unlike the American Opportunity Tax Credit, the Lifetime Learning Credit is a per-tax-return credit, not per student, and it isn’t refundable if it exceeds your tax liability.
The Lifetime Learning Credit isn’t available to taxpayers with higher incomes. In 2020, the credit phases out at modified adjusted gross incomes between $118,000 and $138,000, assuming you’re married filing jointly, and between $59,000 and $69,000 if you’re single or head of household. You can’t claim the credit if you’re married filing separately. In 2021, the phaseout limit rises to $119,000 to $139,000 for couples, but remains $59,000 to $69,000 for single individuals and heads of household.
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