 Income tax 2022-2023, lifetime learning credit. What expenses qualify? Let's do some wealth preservation with some tax preparation. Most of this information comes from Publication 970, Tax Benefits for Education Tax Year 2022, you can find on the IRS website irs.gov.irs.gov. Support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. At the income tax formula, we're at the bottom where the credits are located remembering the first half of the income tax formula is in essence an income statement, although a strange one ending at taxable income similar to the bottom line of an income statement being net income. We then calculate the tax on taxable income, not using one rate, not using a flat tax, but using the progressive tax system to get to the tax before credits and other taxes. And then we get to the credits and other taxes like self employment tax and stuff like that. And then we've got the payments in the form of withholdings generally or estimated tax payments to get to the tax refund or amount due. Remember that we like credits, they're similar to deductions and that we like them both. But if we can get a dollar credit versus a dollar deduction, we would rather have the dollar credit typically because we get the full dollar of benefit as opposed to the dollar deduction, which simply decreases the taxable income and the benefit will be dependent upon our tax rate. Also remember that the credits could come in the form of non refundable and refundable credits. Non refundable credits do not take the tax liability below zero. The refundable credits can if they do, then we're using the tax code, not as a tax system in that case, but kind of as a welfare or benefit program for that part of the credit. All right, lifetime learning credits, what expenses qualify? So this is going to be similar to what we looked at in the American Opportunity Credit, but not exactly the same. So you'll see some similarities, but there will be differences as well. All right, the lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse or a dependent you claim on your tax return. So generally the credit is allowed for qualified education expenses paid in 2022. So we're kind of on that cash based system. When did we pay for the credits for an academic period beginning in 2022 or the first three months of 2023? So we have that same cut off thing we've seen a few times in prior presentations. So we're in a cash based system, but we still have that like three months if we paid in 2022, but the school is starting in 2023. For example, if you paid $1,500 in December 2022 for qualified tuition for the spring 2023 semester beginning in January 2023, you may be able to use the $1,500 in figuring your 2022 credit. Academic period. What does that mean? An academic period includes a semester, trimester, quarter or other period of study, such as summer school session as reasonably determined by the educational institution. So usually they're somewhat standardized. You got semesters, trimesters, quarters. Sometimes they do some weird stuff at some schools, but they have to have some kind of system. So you could talk to the school themselves, the educational institution to determine their academic period structure. If an educational institution uses credit hours or clock hours and doesn't have academic terms, each payment period can be treated as an academic period paid with borrowed funds. You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. Similar to what we saw when we went over this stuff with the American opportunity credit. And remember, the general idea would be, can you qualify for the American opportunity credits? If you can, it's usually more beneficial. Then we go to the lifetime learning credits, which is more broad in the capacity to be able to qualify for it. Although the expenses that may qualify for the lifetime learning credits might be more narrow than the American opportunity credit. So it's more likely you qualify for it, but possibly less expenses than would be qualified for it. So because it's more narrow in that range. Okay. You can claim a lifetime learning credit for qualified education expense paid with the proceeds of a loan. So if you get a loan, then you could still, that's not free money. So you're going to be paying the loan for the education. You're still paid for the education because you can have to pay back the loan generally with interest rent on the purchasing power of the loan. You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. So treat loan just distribution disbursements sent directly to the educational institution as paid on the date the institution credits the student's account student withdrawals from class. You can claim a lifetime learning credit for qualified education expenses, not refunded when a student withdraws. So if you withdraw from the class, if it's after a certain date typically you don't get a refund, and therefore you still paid the money and it possibly could go towards an education credit. If you get the refund, then you got to get into the weeds of the refund. You got the money back. You didn't really pay it. So if you got the money back in the same year that you paid it, then you'd have to reduce the amount of the expenses by the refund generally. Qualified education expenses for purposes of the lifetime learning credits, qualified education expenses are tuition, that's fairly straightforward, and certain related expenses required for enrollment in a course at an eligible educational institution. That's where the more kind of fuzzy language is at what exactly does it mean to have certain related expenses required for the enrollment and so on. The course must be either part of a post-secondary degree program or taken by the student to acquire or improve job skills. That's a little bit more expansive than the American Opportunity credit, because the American Opportunity credit typically has to be geared towards some kind of decree or certificate and they tacked on here to acquire or improve job skills. So once again, the course must be either part of a post-secondary degree program or taken by the student to acquire or improve job skills. Our eligible educational institution, an eligible educational institution is any college, university, vocational school or other post-secondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. Most of them are because that's how they get a lot of their money is through basically people taking out loans in order to pay for the education. So it includes virtually all accredited public nonprofit and proprietary privately owned profit making post-secondary institutions. Bit of a tongue twister, a lot of peas in that one. Peter Piper picked a pickle peppers. Certain educational institutions located outside the United States also participate in the U.S. Department of Education's federal student aid. That's the FSA programs related expenses. So what are these? Let's get down into the weeds on the stuff. Student activity fees and expenses for course related books, supplies and equipment. Equipment specialist are included and qualified education expenses. Here's the key. Only if the fees and expenses must be paid to the institution for enrollment or attendance. That's a bit more restrictive than the American Opportunity Credit, where you didn't have the thing where you have to basically buy it in essence from the institution. So a bit more restrictive. So once again, you'll want to get the American Opportunity Credit if you qualify for it. But it's more restrictive to qualify for the American Opportunity Credit to qualify for the Lifetime Learning Credit. It's more expensive. So you're more likely to be able to take the credit. But the number of expenses then that will be related expenses to calculating the credit are actually less expensive. As we can see here, they look similar, a lot of similarities, but less expensive. Prepaid expenses, qualified education expenses paid in 2022 for an academic period that begins in the first three months of 2023 can be used in figuring and education credit for 2022 only see academic period early or for example, if you pay $2,000 in December 2022 for qualified tuition for the 2023 winter quarter that begins in January 2023, you can use that $2,000 in figuring and education credit for 2022 only if you meet all other requirements. Let's look at an example. Example number one, Jackson is a sophomore in University V's degree program in dentistry. This year, in addition to tuition, Jackson is required to pay a fee to the University for the rental of dental equipment that will be used in this program. Because the equipment rental fee must be paid to the University V for enrollment and attendance to equipment rental fee is a qualified education expense. So note that we saw a similar example, I believe in the American opportunity credit situation. But here, there's a key to it in that it were required to pay for the rental equipment basically to the University, right? It's not like we bought the rental equipment somewhere else and we just bought we could we have more leeway to buy it wherever we want. We basically had to buy it as part of the program in essence paying the University for the rental equipment for the lifetime learning credit because it's a bit more restrictive. Example two, Donna and Charles, both first year students at College W are required to have certain books and other reading materials to use in their mandatory first year classes. The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. Charles bought the books from a friend. So what was paid for them isn't a qualified education expense. So you need the books in order to be taken to classes because those are the materials for the classes, but they don't mandate where you're going to buy the books from they offer them at the bookstore. But in this case, Charles bought them from a friend. And so they're not going to be something that would be deductible or included as the expenses in order to calculate the credit. Whereas in the American opportunity credit, they may have been an include a bull item. Donna bought the books at College W's bookstore. Although Donna paid College W directly for the first year books and materials, the payment isn't qualified expenses because the books and materials aren't required. So she even bought them from the bookstore. But note, because the college is saying, Hey, look, we have the bookstore where you can buy the books, but you're not required to buy the books and materials directly from the educational institution. So you aren't required to be purchased from College W for enrollment or attendance at the institution. Therefore, you may not be allowed the expenses to calculate the credit in those cases either. And in the American opportunity situation, I believe both of those situations would be allowable expenses. Both of you paid the friend, no matter how you paid for the books, because the books are necessary in order for the qualified or required materials of the course. Alright, example three, when Marcy and roles at College X for freshman year, a separate student activity fee is added to the tuition have to be paid. So this activity fee is required of all students and is used solely to fund on campus organizations and activities run by students such as the student newspaper and student government. No portion of the fee covers personal expenses. Although labeled as a student activity fee, the fee is required for Marcy's enrollment and attendance at College X. Therefore, it is a qualified expense. In other words, this isn't an option here. So you have to pay the fee. So you would otherwise you're not you're not moving forward. So you would think that would be something that you would have that would be includeable as an expense to calculate the lifetime learning credits, as of course it would also you would expect on the American opportunity credit. So when we get to these expenses, do they qualify for the expenses? That's when the American opportunity credit is more broad. And you would think that the lifetime learning situations have a more narrow number of types of expenses that might qualify any expenses that qualify for the lifetime learning, you would think that they would also qualify for the more expansive American opportunity credit. However, the merit American opportunity credit in order to qualify to take the credit at all is more restrictive with the four year restriction and that kind of stuff, whereas the lifetime learning credit is more broad with the overall just qualifications to be able to take the credit. Okay, no double benefit allowed. You can't do any of the following deduct higher education expenses on your income tax return as for example, and a business expense and also claim lifetime learning credit based on those same expenses. You can't you can't deduct it like on a schedule C as a business expense and get the lifetime learning credit because you would be double dipping in that case. So claim a lifetime learning credit for any student and use any of that students expenses in figuring your American opportunity credit so you can't use the same expenses to be taking two credits, two different credits, claim a lifetime learning credit based on the same expenses used to figure the tax free portion of a distribution from a Coverdale Education Saving Account and ESA or Qualified Tuition Program QTP C Coverdale with American Opportunity and Lifetime Learning Credits in Chapter 6 and Coordination with American Opportunity and Lifetime Learning Credits in Chapter 7 claim a credit based on qualified education expenses paid with tax free educational assistance sits as scholarship grant or assistance provided by an employee or so in those cases you already got a tax benefit because you might have got this money and you didn't have to include it in income it would in other words normally be income and if you don't have to include an income you basically kind of got a deduction already and therefore if you took the credit you would be once again double dipping so adjustments to qualified education expenses for each student reduce the qualified education expenses paid by or on behalf of that student under the following rules the result is the amount of adjusted qualified education expenses for each student tax free educational assistance so this is going to be similar to situations in the American opportunity credit at this point now so for tax free educational assistance received in 2020 do reduce the qualified educational expenses for each academic period by the amount of tax free educational assistance allocable to that academic period see academic period earlier so some tax free educational assistance received after 2022 may be treated as a refund of qualified education expenses paid in 2022 this tax free educational assistance is any tax free educational assistance received by you or anyone else after 2022 for qualified education expenses paid on behalf of a student in 2022 or attributable to the enrollment at an eligible educational institution during 2022 if this tax free educational assistance is received after 2022 but before you file your 2022 income tax return see refunds what we may talk about this a little bit in more detail we saw a similar situation in the American opportunity credit you could see refunds received after 2022 but before your income tax return is filed and so on and so forth in other words if you get a refund you you took courses and you dropped out of the course or whatever and you dropped out before the date so they're going to give you a refund if they give you a refund in the same year of 2022 then you'd have to reduce your expenses by the amount that you got the refund that's pretty straightforward but what if you got the refund in 2023 well if you got the refund in 2023 if you hadn't yet filed your 2022 tax return you would think you could still reduce your 2022 tax return by the refund but if you got your refund in 2023 for the expenses you paid in 2022 after you filed the taxes and you included the expenses in 2022 then what are you going to do well you can amend the 2022 return but that's kind of a messy situation you might be able to if you're claiming the lifetime learning credit again in 2023 you might be able to to adjust the expenses in that year that would seem rational or reasonable if you're not claiming the educational expense you might have to like recapture some of the some of the credit you got in the prior year it would be the general idea okay tax-free educational assistance includes the tax-free part of scholarship and fellowship grants see tax-free scholarship and fellowship grants in chapter one the tax-free part of Pell grants see Pell grants and other title four need based education grants in chapter one employer provided educational assistance see chapter 10 veterans educational assistance scenes veterans benefits in chapter one and any other non-taxable tax-free payments other than gifts or inheritance received as educational assistance generally any scholarship or fellowship grant is treated as tax-free however a scholarship or fellowship grant isn't treated as tax-free to the extent the student includes it in gross income so now you've got this situation that's funny situation you were going to get free money you got this free money and there usually they're going to say you don't have to include it in income which is usually good because we have an income tax system but if you don't include it in income then you can't take a credit for it because you've already got a tax benefit because you didn't include it in income but then you might say but hey wait a second I'd rather included in income possibly in some situations because then it would allow me to take the credit and the credit might be worth more than the fact that I got a basically a deduction by not having to include it in income you see where this messiness comes up when they do all this weird stuff so the student may or may not require to file a tax return for the year the scholarship or fellowship grant is received and either of the following is true so the scholarship or fellowship grant or any part of it must be applied by its terms to expenses such as room and board other than qualified education expenses as defined and qualified education expenses in chapter one similar situation we saw with the American opportunity credit here this is a lot of similar stuff now that we've gone past the qualifications for the expenses so the scholarship full scholarship for fellowship grant or any part of it may be applied by its terms to expenses such as room and board other than qualified education expenses as defined and qualified education expenses in chapter one refunds all right here we go with the refunds again you took a course you dropped out before the date to get your refund and you got your refund but now what do you do about the expenses that you're gonna be calculating on your lifetime learning credit a refund of qualified education expenses may be may reduce adjusted qualified education expenses for the tax year or required repayment recapture of a credit claimed in earlier year some tax free educational assistance received after 2022 may be treated as a refund see tax free educational assistance earlier refunds received in 2022 so for each student figure the adjusted qualified education expenses for 2022 by adding all the qualified education expenses for 2022 and subtracting any refunds of those expenses received from the eligible educational institution during 2022 so if you got educational expenses and then you dropped out or whatever and you got a refund of part of it in the same year pretty straightforward you've got to take that refund because you didn't really pay it and reduce the educational expenses that you paid by the amount that got refunded to you refunds received after 2022 but before your income tax return is filed so you got the refund in 2023 but you hadn't yet filed the 2022 tax return in 2023 because you haven't till April or so to do so so you could still take that refund and net it out against the money that you paid in 2022 you would think so if anyone receives a refund after 2022 of qualified education expenses paid on behalf of a student in 2022 and the refund is paid before you file an income tax return for 2022 the amount of qualified education expenses for 2022 is reduced by the amount of the refund and here's where the messiness comes in though refund received after 2022 and after your income tax return is filed so now you paid for it in 2022 you dropped out or did something they're going to give you a refund but then you got the refund in 2023 after you filed the tax return so what are you going to do or you could you have to amend do you have to amend the 2022 tax return to reduce the amount of expenses to reduce the credit and whatnot so if anyone receives a refund after 2022 of qualified education expenses paid on behalf of a student in 2022 and the refund is paid after you file an income tax return for 2022 you may need to repay some or all of the credit no it's called the credit recapture they're recapturing your credit like a lion that they put in a cage so so if if any tax-free educational assistance for the qualified education expenses paid in 2022 or any refund of your qualified education expenses paid in 2022 is recovered is received after you file your 2022 income tax return you must recapture repay any excess credit you do this by refiguring the amount of your adjusted qualified education expenses for 2022 by reducing the expenses by the amount of the refund or tax-free educational assistance you then figure your education credits for 2022 and figure the amount by which your 2022 tax liability would have increased if you had claimed the refigured credit so in other words you what are you going to do you could go back in amend 2022 but that would be kind of a pain you don't really like to do that so we want to fix it in tax year 2023 so we can go back and try to say okay what would be the difference in my taxes in 2022 had I adjusted it and and removed these expenses how much lower would my lifetime learning credit be and the impact on whatever else impact on the tax return and you could just figure that and instead of filing an amended tax return for that difference possibly include the amount as an additional tax for the year the refund or tax-free assistance was received so you include it in 2023 instead of amending it possible other alternative if you're filing for a lifetime learning credit in 2023 as well you would think it would be rational to to try to adjust your expenses in 2023 for the refund that you got in 2023 so that would be like a reasonable kind of thing to do but a lot of times people might not be filing for a lifetime learning credit in 2023 because they didn't go to school in 2023 when they did in 2022 and therefore you're left with either amending 2022 or doing this recapture situation example you paid 9,300 tuition and fees in December 2022 and your child began college in January 2023 you file your 2022 tax return on February 14th 2023 and claimed a lifetime learning credit of $1,860 you claimed no other credits after you filed your return your child withdrew from the two courses and you received a refund a little ingrate i told you to go i'm paying for this thing here for crying out you said you wanted to you said you wanted to go to school you dropping out like whatever anyways after you file your return your child withdrew from two courses and you received a refund of $2,900 you must refigure your 2022 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300 so the refigured credit is $1,280 and your tax liability increased by $580 so you're going to say okay i'm going to refigure my taxes without these expenses it comes out to a $580 difference and then you could see the instructions for 2023 income tax return to determine where to include this tax in other words you got to figure out where to add it to the taxes as like another an added tax like an other tax on the form 1040 all right amounts that don't reduce qualified education expenses don't reduce qualified education expenses by amounts paid with funds the students received as payment for services such as wages because those are included in income alone that's not the same thing as a grant or something because you're gonna have to repay the loan so it's you still a gift is something that was gifted to you so that's not the same thing as like a grant or something like it's free money but it's a gift situation rather than like a grant or something like that and inheritance so again that's similar to a gifting type of situation except the individual died and when they died they might have even been subject to the death tax or a state's tax so so you shouldn't have to be anyways a withdrawal from the student's personal savings so clearly a withdrawal from the savings isn't free money you would expect because you got that somehow with a gift inheritance or you earned it or something so don't reduce the qualified education expenses by any scholarship or fellowship grant reported as income on the student's tax return in the following situations so the use of the money is restricted by the terms of the scholarship or fellowship grant to costs attendance such as room and board other than qualified education expenses as defined in qualified education expenses in chapter one the use of the money money isn't restricted so once again don't reduce the qualified education expenses by any scholarship or fellowship grant reported as income meaning usually you have the grant and if it's tax-free then you already got a benefit you got in essence the equivalent of a deduction it wasn't included in income but if you're paying taxes on it then then you might be able to the expenses that you paid for with that money possibly could be something that could go towards the the expenses you would think for the lifetime learning credit we got the coordination with the Pell grants and other scholarships so you may be able to increase your lifetime learning credit when the student you your spouse or your dependent includes certain scholarship or fellowship grants and the student's gross income so here we go with that situation where you're like well wait a second I know you're trying to help me out here by not including it in income but then I don't get the credit and I'd rather have the credit than the income sometimes than being able to reduce the income from it because credits are more than deductions and benefit oftentimes so your credit may be increased only if the amount of the students qualified education expenses minus the total amount of the scholarship and fellowship grants is less than ten thousand dollars so in if this situation applies consider including some or all of the scholarship or fellowship grant in the student's income in order to treat the included amount as paying non-qualified expenses instead of qualified education expenses non-qualified expenses or expenses such as room and board that aren't qualified education expenses such as tuition and related fees scholarship and fellowship grants that the student includes in income don't reduce the student's qualified education expenses available to figure your lifetime learning credit thus including enough of the scholarship and fellowship grants in the student's income to report up to ten thousand dollars in qualified education expenses because that's the amount you can put in to maximize the credit for the lifetime learning credit qualified education expenses for your lifetime learning credit may increase the credit by enough to increase your tax refund or reduce the amount of tax you owe even considering any increased tax liability from the additional income in other words if you have the option to say I would like to include this money in income even though I wouldn't normally have to include it in income it's usually better not to include it in income but this time I want to include it in income because that possibly will allow me to maximize the amount of expenses ten thousand dollars that goes towards my lifetime learning credit and I'm taking the lifetime learning credit instead of the American opportunity credits because I don't qualify for the American opportunity credit for whatever reason which has a different limit right then that's because that's where the ten thousand comes in instead of the four thousand for the American opportunity so that's so now I'm going for the lifetime learning and I want the ten thousand dollars so I can maximize out my lifetime learning credit because the credit's worth more than the deduction sometimes so however the increase in the tax liability as well as the loss of other tax credits may be greater than the additional lifetime learning credit and may cause your tax refund to decrease or the amount of your tax you owe to increase so your specific circumstances will determine what amount if any of the scholarship or fellowship grant to include in income to maximize your tax refund or minimize the tax amount you owe so the scholarship or fellowship grant must be one that may qualify as tax-free scholarship under the rules discussed in chapter one also scholarship or fellowship grant must be one that may by its terms be used for non-qualified expenses finally the amount of the scholarship or fellowship grant that is applied to non-qualified education expenses can't exceed the amount of the student's actual non-qualified expenses that are paid in the in the tax year this amount may differ from the student's living expenses estimated by the student's school and figuring the official cost of attendance under the student aid rules so the fact that the educational institution applies the scholarship or fellowship grants to qualified education expenses such as tuition and related fees doesn't prevent the student from choosing to apply certain scholarship or fellowship grants to the student's actual non-qualified expenses okay so by making this choice that is by including the part of the scholarship or fellowship grant that grant applied to the student's non-qualified expenses in income the student may increase taxable income and may be required to file a tax return but this allows payments made in cash by check by credit or debit card or with borrowed funds such as the student loan to be applied to qualified education expenses all right let's take a look at example no scholarship Judy who is unmarried and is taking courses at a public community college to be recertified to teach in public schools recertified she was certified before do you have to do that every time I don't know the adjusted gross income the AGI and the MAGI the modified adjusted gross income for purposes of the credit are $27,800 Judy claims the standard deduction $12,950 resulting in taxable income $14,850 and a tax liability before credits of $1,580 Judy claims no credit other than the lifetime learning credit so she couldn't take the American opportunity credit we're assuming and therefore is defaulting to the lifetime learning credit here in July 2022 Judy paid $700 for the summer 2022 semester in August 2022 Judy paid $1,900 for the fall 2022 semester and in December 2022 Judy paid another $1,900 for the spring semester beginning in January 2023 so remember we have this cash basis kind of thing she paid all these amounts in 2022 even though that January semester isn't starting she's not actually going to school for it until 2023 Judy and the college meet all requirements for the lifetime learning credit all of the $4,500 tuition paid in 2022 can be used when figuring the 2022 lifetime learning credit Judy claims a $900 lifetime learning credit and the tax liability after credits is $680 let's take a look at another word example two scholarship included from income scholarship excluded from income the facts are the same as in example one no scholarship except that Judy was awarded a $1,500 scholarship so now she's got the scholarship so under the terms of the scholarship it may be used to pay any educational expenses including room and board so she can do whatever she wants with it and well within a certain terms if the scholarship is excluded from income Judy will be deemed for purposes of figuring the education credit to have applied the scholarship to pay for to wishing required fees and course materials so if she excludes it from income then we're assuming that she used it to pay for these expenses that would normally be part of the expenses to qualify for the credit and she already got a benefit from it if she didn't include it in income because it would be kind of like she got a deduction she didn't have to include it as income so only $3,000 of the $4,500 tuition paid in 2022 could be used when figuring the 2022 lifetime learning credit the lifetime learning credit would be reduced to $600 and the tax liability after credits would be $980 all right example three scholarship included in income what if we include the scholarship in income what happens then so the facts are the same as in example two scholarship excluded from income except now if unlike example two Judy includes the $1,500 scholarship in income she's like yeah I know you're trying to help me out by not having to include it in income which is usually good but I want to pick up the credit which is worth more than the deduction or exclusion from income so Judy will be deemed to have applied the entire scholarship to pay for room and board so Judy's AGI and MAGI would increase to $29,300 and the taxable income would be $16,350 and the tax liability before credits would be $1,760 Judy would be able to use the $4,500 of adjusted qualified education expenses to figure the credit Judy could claim a $9,000 lifetime learning credits and the tax liability after credits would be $860 another one example four scholarship applied by the post-secondary school to tuition so facts are the same as in examples three except the $1,500 scholarship is paid directly to the public community college so the fact that the public community college applies this the scholarship to Judy's tuition and related fleas doesn't prevent Judy from including the $1,500 scholarship in income so as an example three by doing so Judy will be deemed to have applied the entire scholarship to pay for the room and board so in other words you might be saying this whole idea that I have to have it as though I applied it to the room and board seems strange here since the scholarship was paid directly to the institution for the payment of the school right but I think that to me one of the general facts is well if you're including it in income then you didn't really get a tax benefit from it because it's going to be income to you but they have this thing here that you have to the idea being that it's assumed to be paid to the room and board in order to allow you to have all the other expenses paid by paid outside of the scholarship money and therefore be able to take the credit related to it so as an example three by choosing so Judy will be deemed to have applied the entire scholarship to pay for room and board Judy could claim the $900 lifetime learning credit and the tax liability after credits would be 860 all right expenses that do not qualify qualified education expenses don't include amounts paid for these are going to be similar to what we saw with the American Opportunity Credit insurance medical expenses including student health fees room and board transportation or similar personal living or family expenses this is true even if the amount must be paid to the institution as a condition of enrollment or attendance we saw when we looked at the qualifying expenses one of the rules for things like like the supplies was that more restrictive rule that you had to basically apply this you know there were a requirement from the school and you're going to be paying the school for the supplies which is more restrictive than it was with the the American Opportunity Credit but even if you're required wired by the school for the room and board for example that's not part of the actual education I think the assumption would be that you would have had to have the room and board anyways so even though it might be payment of a different if you had room and board outside of the location but in case that's what it is so sports games hobbies and non-credit courses qualified education expenses generally don't include expenses that relate to any course of institution or other education that involves sports games or hobbies or non-credited courses no fun stuff no fun stuff however if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills these expenses can qualify okay some exceptions maybe comprehensive or bundle fees so some eligible educational institutions combine all their fees of an academic period into one amount if you don't receive or don't have access to the allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses such as those listed above contact the institution the institution is generally required to make these allocation and provide you with the amount you paid for qualified education expenses on form 1040 I'm sorry 1098 t so in other words if they bundled everything together including things like room and board as well as the tuition and books and stuff in one package fee then you're going to have to break out what is going to be qualified or not you would think the institution would have that breakout there I believe they're required to have that breakout and of course you would be behoove them to have it because you're going to have questions about this all the time you would expect