When Must the Credit Be Repaid (Recaptured)(p25)

If, after you file your 2011 tax return, you or someone else receives tax-free educational assistance for, or a refund of, an expense you used to figure a lifetime learning credit on that return, you may have to repay all or part of the credit. You must refigure your lifetime learning credit for 2011 as if the assistance or refund was received in 2011. Next, you must refigure your tax liability using the revised lifetime learning credit. The increased tax liability is the amount you must repay. Add the repayment (recapture) to your tax liability for the year in which you receive the assistance or refund. See the instructions for your tax return for that year to find out how to report the recapture amount. Your original 2011 tax return does not change.

You paid $9,300 tuition and fees in December 2011, and your child began college in January 2012. You filed your 2011 tax return on February 15, 2012, and claimed a lifetime learning credit of $1,860. You claimed no other tax credits. After you filed your return, your child dropped two courses and you received a refund of $2,900. You must refigure your 2011 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. The refigured credit is $1,280. The increase to your tax liability is $580. See the instructions for your 2012 income tax return to determine where to include this tax.