Lifetime Learning Credit question - what qualifies?

Paying for College
1

<p>I wondered about this when filing my 2008 tax return, but now that the UC has increased student fees 32%, I'm even more curious as I'll be paying 15% more for my final semester.</p>

<p>I'm an independent student who is being financed by scholarship, loans, and work. My student fees (tuition) for 2008/09 were covered by my scholarship, but I still took out the max in unsubsidized student loans. 2009 fall semester, my student fees were covered by most of my scholarship, but I paid about $500 out of the loan. 2010 spring semester, I anticipate paying about $1000 out of the loan for my student fees. (The remainder goes towards books, school supplies, and living expenses - it just about covers my rent and utilities. I work as much as possible to cover anything else, and anticipate needing to work about 5 hours more per week during my final semester to cover the loss of loan money due to the fee increase.)</p>

<p>Student fees are paid automatically before anything else is "refunded" to me. Because my scholarship was enough to cover my student fees in 2008/09, I didn't think I was eligible for the Lifetime Learning Credit. But am I looking at this the wrong way? Should I consider all financial aid fair game for covering tuition, in other words, should I think that my loans are paying my tuition instead of the scholarship? If I think that way, I am eligible for the Lifetime Learning Credit. Or would I only be eligible to claim any tuition that I pay above what my scholarship covers? </p>

<p>Thanks!</p>

2

<p>Unless your scholarship specifies that it is for tuition then you can choose to use it to pay for any part of your education expenses that you want. If what you use it for does not qualify as an education expense for ‘taxable grant/scholarships purposes’ then this will make the scholarship taxable income. However the tax credit may
save you more tax then the scholarship costs you. Run the scenarios both ways.</p>

<p>For 2009 tax year there is a different tax credit. It is like the Hope but covers the 1st 4 years of school rather than only 2. If you are eligible for it, it may be a better credit for you than LLC. Again, run the scenarios and see which is better.</p>

3

<p>Thanks swimcatsmom! That is what I’ll do.</p>

4

<p>I don’t think the IRS has published the 2009 Publication 970 yet. When they do, download a copy. It will answer all these types of questions.</p>

<p>And yes, even thought it’s written by the IRS, it actually makes sense. You do not have to be a CPA to understand it.</p>

5

<p>Who takes the education credit senior year? If the student gets a job after graduation and makes 15,000, can the student file single for tax purposes and take the credit or would the parents the student can be claimed as a dependent if they were a full-time student for five months?</p>