Question

Janie graduates from highschool in 2019 and enrolls in college in the fall. Her parents (who file a joint return) pay $12,225 for her tuition and fees.

Assuming Janie's parents have AGI of $172,600, what is the American Opportunity tax credit they can claim for Janie?

Answer 1

As stated in IRS, income limits for AOTC (American Opportunity Tax Credit) would be: MAGI (Modified adjusted gross income) must be $80,000 or less ($160,000 or less for married filing jointly) ; you claim a reduced amount of the credit of your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing return).

Since Janie's parents have AGI of $172,600 (between $160,000 and $180,000) will have partial credit or at a reduced rate applied.

Calculation would be reduced credit using lines 2-7 of Form 8863, Part I. (as per IRS)

=Maximum Claim x (upper limit for married filing return - MAGI) / Range of income of the phaseout

= $2500 x ($180,000 - 172,600) / ($180,000 - 160,000)

= $2500 x ($7,400 / 20,000)

= $2,500 x 0.37

=$925

Credit that they claim would be $925

Note:

Maximum Claim = $2,500 (100% of the first $2,000 of qualified education expenses, + 25% of the next $2,000 of qualified education expenses)