Question

In 2020, Elaine paid $2400 of tuition and $1020 for books for her dependent son to attend State University this past fall as a freshman. Elaine files a joint return with her husband. What is the maximum American opportunity tax credit that Elaine can claim for the tuition payment and books in each of the following alternative situations?

a. Elaine's AGI is $99,750

b. Elaine's AGI is $166,500

c. Elaine's AGI is $213,500

Answer 1

For most of the people MAGI = AGI, if they file form 1040 and add certain amounts to AGI in line 7. Those certain amount includes foreign earned income exclusion, foreign housing exclusion , foreign housing deduction etc.

Here, I assumed for Elaine, her AGI = MAGI.

Here, Elaine filed a joint return.

American opportunity tax credit based on following AGI/MGI criteria :

Range of AGI/ MGI ( For joint fillers)	Tax credit
$ 0 to $ 160,000	100%
$ 160,001 to $ 180,000	Partial
$ 180,001 and above	No Credit

American opportunity tax credit is allowable for qualified educational expense including tuition fees paid to the school, expenses on books , supplies and equipment .

Here, for Elaine Total qualified educational expenses = $ 2,400 + $ 1,020 = $ 3,420.

A) When Elaine's AGI = $ 99,750

She will claim the full (100%) American opportunity tax credit because jointly their AGI is less than $ 160,000

American opportunity tax credit = 100% on the first $ 2,000 of qualified educational expenses + 25% on the next  $ 2,000 of qualified educational expenses.

American opportunity tax credit = $ 2,000 X 100% + 1,420 X 25% = $ 2,355.

So she can claim 100% of $ 2,355 i.e $ 2,355.

B) Elaine's AGI = $ 166,500

American opportunity tax credit = $ 2,355 ( calculated earlier)

Elaine can claim = $ 2,355 X ( 1 - Tax percentage)

Tax percentage = [ $ 166,500 - $ 160,000] / [ $ 180,000 - $ 160,000] = $ 6,500 / $ 20,000 = 0.325

Elaine can claim = $ 2,355 X ( 1 - 0.325) = $ 1,589.625 or $ 1,589.63

C) Elaine's AGI = $ 213,500

So, she can't claim American opportunity tax credit .

Summary :

	AGI	AOTC claimed by Elaine
A	$ 99,750	$ 2,355
B	$ 166,500	1,589.63
C	$ 213,500	Nil

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