For 2012, 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 American opportunity credit and the lifetime learning credit. This chapter discusses the lifetime learning credit. The American opportunity credit is discussed in chapter 2, The American Opportunity Credit.

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 for qualified education expenses paid for all eligible students. 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.

Your allowable lifetime learning credit 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 2012 tax return, you cannot, for that same child, also claim the American opportunity credit for 2012.

If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both.

If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. This means that, for example, you can claim the American opportunity 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 American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope credit was claimed counts toward the 4 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 these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2012 near the end of this publication.

See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. The details are discussed in this chapter.

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 later under Qualified Education Expenses. "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, Can You Claim the Lifetime Learning Credit for 2012, later, helpful in determining if you can claim a lifetime learning credit on your tax return.

You cannot claim the lifetime learning credit for 2012 if any of the following apply.

• Your filing status is married filing separately.
• You are listed as a dependent 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 $62,000 or more ($124,000 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 2012 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.
• You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2012.