Tax Question - Lifetime Learning Credit

Yes, you are considered to have paid for your education even if it is just loans or scholarships. You should be eligible for the lifetime learning credit if you meet the other criteria. This publication is helpful.
tax benefits for education

Is there a 2006 version of this document? I haven't been able to find it and was looking for clarification on something. From what I've read, according to the 2005 rules you can deduct tuition paid for in 2005 the spring semester of 2006. But what about the 2006 tax year? If I didn't have to file last year, can I deduct the spring 2006 tuition even if it was officially posted in December 2005?? (in other words, I have a 1098-T form from 2005, but won't get one this year even though I was a student for spring 2006, since the tuition was officially posted in Dec 2005). The interesting thing is that my student loans officially posted January 3rd and 4th, and loans are deductable as you said above, but as I said I won't have an official 1098-T document saying that I "paid tuition" in 2006.

It just seems absurd that you can go to school for 8 years and not be able to get a tax credit for it since you didn't have enough income to benefit from the tax break at the time when you could have gotten it. Now that I finally have some income, as an intern, it seems like there's no benefit! (unless you start paying off student loans, in which case the interest paid is deductable)

Arrrrgh!

I didn't notice the date. This pub is what pops up on the official irs.gov site, so I don't know when they are planning on replacing it with the current year. As for your question, I am in a similar predicament. I toyed with the idea of claiming it (and playing stupid about what date things happened on), but I just got my 1098-T. I am thinking now that it an invitation to getting bent over in an audit if I try to claim it. I called the IRS help line and they seemed pretty adamant about only claiming the credit if you paid tuition in the tax year you are filing (this was last year though). One other thing to try for your situation (loans posted in 06), is to speak to your school and point out that in fact you "paid" your tuition in 06 and they should reflect that on your 1098-t. My loans posted in 05 so no help there. I am assuming the school gets some sort of tax benefit by having stuff post early, otherwise why would they screw us all over.

dpmd said:

I didn't notice the date. This pub is what pops up on the official irs.gov site, so I don't know when they are planning on replacing it with the current year. As for your question, I am in a similar predicament. I toyed with the idea of claiming it (and playing stupid about what date things happened on), but I just got my 1098-T. I am thinking now that it an invitation to getting bent over in an audit if I try to claim it. I called the IRS help line and they seemed pretty adamant about only claiming the credit if you paid tuition in the tax year you are filing (this was last year though). One other thing to try for your situation (loans posted in 06), is to speak to your school and point out that in fact you "paid" your tuition in 06 and they should reflect that on your 1098-t. My loans posted in 05 so no help there. I am assuming the school gets some sort of tax benefit by having stuff post early, otherwise why would they screw us all over.

Click to expand...

My loans posted in 05 too! I find it so aggravating that I paid an absurd amount of tuition and not a cent of it can be claimed as a tax break! By the way you can claim Tuition and Fees Deduction, which is more of tax break then the Lifetime Learning Credit (if you qualify). Not that I can claim either!

damn the IRS.

That actually depends on how much educational expenses you had, and what tax bracket you fall into. The max tuition and fees deduction last year was 4000, while the max lifetime learning credit was 2000. I paid a lot of tuition so I could have taken either of those. Taking the tuition and fees deduction would have saved me only $500 in tax.

It sucks that we can't take either this year, but people who can should check what they owe with both methods to see which is better.

i just have one thing to add to the last post, in addition to federal taxes, include state taxes as well when you figure out which option is more advantageous in your specific situation.

i think the tuition and fees deduction has been outed this year. the only hope is the hope/lifetime learning credit

Reference:
http://www.irs.gov/pub/irs-pdf/i1040a.pdf page 11

my question :
does anyone know that if we are getting more loan money than we need for tuition (getting refunded for living expenses) each semester, does that count as income??

Critical Mass said:

No, you are supposed to claim tuition and fees on line 35 of form 1040 (scroll toward the bottom of the page linked):

http://www.irs.gov/publications/p970/ch06.html

Keep in mind that you can't deduct it and still claim Lifetime Learning on the same money. Apparently Congress voted to keep the deduction for 2006 after the forms had already been printed.

In all cases, you MUST offset tuition/fees by free money (including scholarships/grants). If you are paying with a loan, then the money is still coming out of your pocket someday so you can claim it.

And no, leftover loan money does not count as income.

Click to expand...

Ok i see, weird.. I didnt catch it because of the different name on the online form

http://www.irs.gov/pub/irs-pdf/f1040.pdf

thanks for the answer to my question!

That is the correct line. If you read the pub in the link given you can see where it tells you to put it on that line.

I'm curious. What sort of situation makes the deduction a better deal than the credit? I don't really feel like calculating a bunch of scenarios (I calculated mine and the credit won by a landslide), but I would like to have an example so I can understand.

dpmd said:

That is the correct line. If you read the pub in the link given you can see where it tells you to put it on that line.

I'm curious. What sort of situation makes the deduction a better deal than the credit? I don't really feel like calculating a bunch of scenarios (I calculated mine and the credit won by a landslide), but I would like to have an example so I can understand.

Click to expand...

The deduction would be better if you had a low amount, but a high tax rate. If you have 4000 in tuition, you only get an 800 credit (20% of that 4000), however, you can deduct the whole amount. If you are in the "28%" bracket, that saves you 1120!

Ed

Ok, thanks.

dpmd said:

That is the correct line. If you read the pub in the link given you can see where it tells you to put it on that line.

I'm curious. What sort of situation makes the deduction a better deal than the credit? I don't really feel like calculating a bunch of scenarios (I calculated mine and the credit won by a landslide), but I would like to have an example so I can understand.

Click to expand...

Not sure if you know this or not, but Turbotax will consider all of teh scenarios for you so you get the bigger deduction.

Yes, turbo tax is what I use. I was just trying to wrap my mind around when it would be a good thing since I have only used the credit.

One other thing I never understood (sorry, off topic). What kind of situations make it better to file separate if you are married? I heard someone talking about it and I realized I never took a look at that option.