Can I Deduct Continuing Education When I Claim the Lifetime Learning Credit?

The IRS does not allow you to claim both a credit and a deduction for the same educational expenses, so you have to choose whichever gives you the greatest benefit

There are several different tax benefits available to students to help ease the cost of higher education. However the IRS does not allow more than one of these benefits to be claimed for any one student for the same expenses.

The Lifetime Learning Credit is one of two tax credits for higher education that can reduce the amount of taxes you owe. It allows you to claim a credit of up to $2,000 for qualified education expenses. The other credit is the American Opportunity Credit.

Each student can only claim one of the credits. You cannot claim the Lifetime Learning Credit if you claim the American Opportunity Credit for the same student and vice versa.

In addition to the credits there is also a Tuition and Fees Deduction which allows you to deduct qualified education expenses paid during the year for yourself, your spouse, or your dependents. It can reduce the amount of your income that’s subject to tax by up to $4,000.

Just as you can’t claim the American Opportunity Credit if you also claim the Lifetime Learning Credit, you can’t claim the Tuition and Fees Deduction if you are claiming either the Lifetime Learning Credit or the American Opportunity Credit, and vice versa.

In short you can only take one of these three tax benefits.

You should compare the benefit you would receive from the Lifetime Learning Credit vs. the American Opportunity Credit vs. the Tuition and Fees Deduction and take whichever provides the greatest benefit.

The tax code essentially prevents you from claiming a double tax benefit for your education expenses. Here’s a list of things you can’t do if you claim the Lifetime Learning Credit or the Tuition and Fees Deduction.

What you can’t do if you claim the Lifetime Learning Credit

• Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a Lifetime Learning Credit based on those expenses.
• Claim a Lifetime Learning Credit in the same year that you are claiming a Tuition and Fees Deduction for the same student.
• Claim a Lifetime Learning Credit and an American Opportunity Credit based on the same qualified education expenses.
• Claim a Lifetime Learning Credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP).
• Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer.

What you can’t do if you claim the Tuition and Fees Deduction

• Deduct qualified education expenses you deduct under any other provision of the law, for example as a business expense.
• Deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American Opportunity or Lifetime Learning Credit for that same student in the same year.
• Deduct qualified education expenses that have been used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or a qualified tuition program (QTP). For a QTP, this applies only to the amount of tax-free earnings that were distributed, not to the recovery of contributions to the program.
• Deduct qualified education expenses that have been paid with tax-free interest on U.S. savings bonds.
• Deduct qualified education expenses that have been paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer.

Photo via dok1 on Flickr.

This entry was posted on Thursday, April 11th, 2013 at 8:14 pm and is filed under Tax Deductions and Credits. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.