The amount of your lifetime learning credit for 2008 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $48,000 and $58,000 ($96,000 and $116,000 if you file a joint return). You cannot claim a credit if your MAGI is $58,000 or more ($116,000 or more if you file a joint return). This is an increase from the 2007 limits of $47,000 and $57,000 ($94,000 and $114,000 if filing a joint return). See Effect of the Amount of Your Income on the Amount of Your Credit, later, for more information.

The following rules apply only to students attending an eligible educational institution in the Midwestern disaster areas in the states of Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin. See Table 3-2 near the end of this chapter for a list of counties.

• The lifetime learning credit rate for students in Midwestern disaster areas is 40%.
• The definition of qualified education expenses for the lifetime learning credit is expanded for students in Midwestern disaster areas. See Students in Midwestern disaster areas, under Qualified Education Expenses, later in this chapter for more information.

There are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. They are the Hope credit and the lifetime learning credit, also referred to as education credits. This chapter discusses the lifetime learning credit. The Hope credit is discussed in chapter 2.

This chapter explains:

• Who can claim the lifetime learning credit,
• What expenses qualify for the credit,
• Who is an eligible student,
• Who can claim a dependent's expenses,
• How to figure the credit,
• How to claim the credit, and
• When the credit must be repaid.

For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in Midwestern disaster areas) for qualified education expenses paid for all students enrolled in eligible educational institutions. There is no limit on the number of years the lifetime learning credit can be claimed for each student.

A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The lifetime learning credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you.

The lifetime learning credit you are allowed may be limited by the amount of your income and the amount of your tax.

For each student, you can elect for any year only one of the credits. For example, if you elect to take the lifetime learning credit for a child on your 2008 tax return, you cannot, for that same child, also claim the Hope credit for 2008.

If you are eligible to claim the lifetime learning credit and you are also eligible to claim the Hope credit for the same student in the same year, you can choose to claim either credit, but not both. For 2008, if the total qualified education expenses for a student are more than $9,000, it will generally be to your benefit to claim the lifetime learning credit.

If you pay qualified education expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. This means that, for example, you can claim the Hope credit for one student and the lifetime learning credit for another student in the same year.

There are several differences between these two credits. For example, you can claim the Hope credit based on the same student's expenses for no more than 2 years. However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. The differences between the two credits are summarized in Table 3-1.

The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return.

Generally, you can claim the lifetime learning credit if all three of the following requirements are met.

• You pay qualified education expenses of higher education.
• You pay the education expenses for an eligible student.
• The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return.

"Qualified Education Expenses" are defined on this page. "Eligible students" are defined later under Who Is an Eligible Student. A "dependent for whom you claim an exemption" is defined later under Who Can Claim a Dependent's Expenses.

You may find Figure 3-1, on the next page, helpful in determining if you can claim a lifetime learning credit on your tax return.

You cannot claim the lifetime learning credit for 2008 if any of the following apply.

• Your filing status is married filing separately.
• You are listed as a dependent in the Exemptions section on another person's tax return (such as your parents'). See Who Can Claim a Dependent's Expenses, later.
• Your modified adjusted gross income (MAGI) is $58,000 or more ($116,000 or more in the case of a joint return). MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit.
• You (or your spouse) were a nonresident alien for any part of 2008 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. More information on nonresident aliens can be found in Publication 519, U.S. Tax Guide for Aliens.
• You claim the Hope Credit or a tuition and fees deduction for the same student in 2008.