Lifetime Learning Credit

For students who graduated in during the first half of 2007 and are now interns during the second half of 2007, can they claim the Lifetime Learning Credit for the medical school tuition/fees paid during the first half of 2007?

Claiming the Lifetime Learning Tax Credit is a huge tax break to first-year interns. You get to claim a tax credit equal to 20% of the first $10k paid for tuition, required fees, and certain other expenses during the calendar year. Remember, a tax credit is a dollar for dollar reduction is the taxes you owe, so if you paid at least $10k in tuition during 2007, your tax refund will increase by $2k thanks to this tax break.

To claim this credit, you can't be claimed as a dependent on your parent's tax return. If you took out loans to pay for your tuition, you calculate this tax credit based on the year in which the expenses are paid, and not when the loans are repaid.

There is an income limit for this tax credit. Single individuals with income greater than $57k, and married couples with income greater than $114k during 2007 are out of luck. More info about the Lifetime Learning Credit can be found in the instruction to the IRS form 8863 or IRS Publication 970, available at www.irs.gov.

Just make sure that you are charged, and pay tuition after January 1st. The class ahead of me had their tuition due before Dec 31 and since it was not in the new tax year, were not able to claim the credit. Talk with your financial aid/registrar to make sure this is the case.

Good point. Most taxpayers are on the "cash basis" of accounting. That means that you're taxed on income that you receive during the year, and deduct those allowable expenditures that you actually paid during the year. Items paid by credit card and student loan are deductible in the year that the transaction occurred.

For that reason, anyone in their last year of medical school should hold off paying their final semester's tuition and fees to January 1st of that year.

Expect to receive a form 1098-T from the college or university for every year that you are enrolled as a student. Usually, however, this form reflects the tuition that was billed during the year. Some schools are kind enough to print out additional info on the back of this form, including when payments were made by you during the year.

Since you only care about the tuition and fees PAID during the calendar year, it's a good idea to ask for a print-out of your activity from the school's Bursar's Office to be able to substantiate the tuition and fees paid during the year. Hopefully you'll find that your payments and loan disbursement reflect a January 2007 date.

Are you 100% certain 2007 graduates cannot claim the Lifetime Learning Credit even if we paid in Dec 2006?

This is what I found (from http://www.irs.gov/individuals/article/0,,id=96273,00.html#QA14):

Q.14. May a parent or student claim a Lifetime Learning Credit for tuition paid in advance of when the academic period begins?
A.14. Generally, the credit is available only for payments of qualified tuition and related expenses that cover an academic period beginning in the same calendar year as the year in which payment is made. (An academic period begins on the first day of classes, and does not include periods of orientation, counseling, or vacation.) An exception, however, allows a parent or student to claim a Lifetime Learning Credit for payments of qualified tuition and related expenses made during the calendar year to cover an academic period that begins in January, February, or March of the following taxable year. Because the Lifetime Learning Credit does not apply to expenses paid before July 1, 1998, this exception does not apply to tuition paid before that date to cover academic periods beginning before or after that date.

AndyFromMDTAXES said:

Claiming the Lifetime Learning Tax Credit is a huge tax break to first-year interns. You get to claim a tax credit equal to 20% of the first $10k paid for tuition, required fees, and certain other expenses during the calendar year. Remember, a tax credit is a dollar for dollar reduction is the taxes you owe, so if you paid at least $10k in tuition during 2007, your tax refund will increase by $2k thanks to this tax break.
To claim this credit, you can't be claimed as a dependent on your parent's tax return. If you took out loans to pay for your tuition, you calculate this tax credit based on the year in which the expenses are paid, and not when the loans are repaid.

There is an income limit for this tax credit. Single individuals with income greater than $57k, and married couples with income greater than $114k during 2007 are out of luck. More info about the Lifetime Learning Credit can be found in the instruction to the IRS form 8863 or IRS Publication 970, available at www.irs.gov.

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Just be aware that your refund will only increase by the full $2000 if you actually paid this much (or more) tax. I just did the taxes for my husband (currently an intern, I'm unemployed, ughhhh). Since he only had income for half the year at a total of ~$22,000 he was only eligible for $685 since that is all the tax that was paid (based on taxable income of ~$6900). So unless you have a spouse making a fairly substantial income you probably won't qualify for the full $2000. Just didn't want anyone to get overly excited for no reason. Disclaimer - I am not a tax expert, so if by chance I (or rather Turbo Tax) has done something wrong and we are entitled to the full $2k please let me know!

randomedstudent said:

Just be aware that your refund will only increase by the full $2000 if you actually paid this much (or more) tax. I just did the taxes for my husband (currently an intern, I'm unemployed, ughhhh). Since he only had income for half the year at a total of ~$22,000 he was only eligible for $685 since that is all the tax that was paid (based on taxable income of ~$6900). So unless you have a spouse making a fairly substantial income you probably won't qualify for the full $2000. Just didn't want anyone to get overly excited for no reason. Disclaimer - I am not a tax expert, so if by chance I (or rather Turbo Tax) has done something wrong and we are entitled to the full $2k please let me know!

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Here is a crazy idea: raise you're taxable value. Yes, I said raise. How? If you have money in a 401k/IRA, then roll it over into a Roth. Just roll over enough so that you trigger enough tax to hit the $2k limit. Then turn back around and claim the full $2k.

nevermind

Twitch said:

Here is a crazy idea: raise you're taxable value. Yes, I said raise. How? If you have money in a 401k/IRA, then roll it over into a Roth. Just roll over enough so that you trigger enough tax to hit the $2k limit. Then turn back around and claim the full $2k.

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NIIIICE! I will have to keep that in mind for when I am in this situation.....

Sol Rosenberg said:

NIIIICE! I will have to keep that in mind for when I am in this situation.....

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No matter how I tweaked the numbers (and I reran this like 10 times even with made up scenarios that we could never actually use) I could never get my refund to increase over what it is currently. I don't know if I'm doing something wrong or not. Basically, even when I vastly increased our tax liability in order to trigger a full $2k credit it didn't actually change the size of our refund.