Master's Program Expenses

• The maximum lifetime learning credit you can claim in a single tax year is $2,000, which you calculate as 20 percent of the initial $10,000 of eligible education expenses you incur on Form 8863. Your eligible education expenses only include the tuition payments your school requires for enrollment in the master's program. However, if your school also requires direct payment for student-activity fees, books, supplies or equipment and will not allow you to enroll in the master's program without payment, only then can you include these expenses when calculating the lifetime learning credit.
  
  

Eligible Graduate Programs

• The school you choose to enroll at to earn a master's degree can affect your eligibility to claim the lifetime learning credit. This is because you can only include the school expenses you incur while attending an institution that the United States Department of Education allows to participate in the federal student financial aid program. However, there is no requirement that you pay for your master's program with funds from a financial aid award to claim the lifetime learning credit. Moreover, if you use tax-free funds to finance your master's degree, such as scholarships and grants, you cannot include the expenses you pay with those funds in the credit calculation.
  
  

Graduate Course Load

• The lifetime learning credit is extremely flexible in its enrollment requirements. As long as you enroll in at least one course during the tax year, you will satisfy the attendance requirement of the credit. And if you attend classes part-time because of work obligations or just prefer to take it slow, there is no limitation on the number of tax years you can claim the tax credit. For example, if you enroll in only one course per semester and it takes you 10 years to complete the master's degree, you can claim the credit every year.
  
  

Eligible Taxpayers

• It is not necessary that the taxpayer who claims the lifetime learning credit be the individual pursuing the master's degree. You also can claim the credit for graduate students who you claim as dependents on your tax return. However, the taxpayer who claims the credit is subject to a phase-out or elimination if their income exceeds certain thresholds. The federal government determines what the income threshold is each tax year, but always uses your modified adjusted gross income as the benchmark. In most cases, your modified adjusted gross income is the same as the adjusted gross income you report on a tax return unless you are an expatriate living and working abroad. For these taxpayers, modified adjusted gross income is equal to adjusted gross income plus all expatriate tax exclusions and deductions they claim on their returns.