Question

Becky, 25 years old, is a single taxpayer who uses the standard deduction. Her AGI is $61,000. After she finished her accounting degree at Minnesota, she decided to enroll in a local community college to take one class in art history as a part time student. The cost of the course was $1500.   Compute the amount of education tax credits available to her in 2020 and specify the name of the tax credit that she is eligible for.

Answer 1

Answer-

Qualified tuition and related expenses for the education tax credits include tuition and required fees for the enrollment or attendance at eligible post-secondary educational institutions (including colleges, universities and trade schools). The expenses paid during the tax year must be for an academic period that begins in the same tax year or an academic period that begins in the first three months of the following tax year.

The following expenses do not qualify for the AOTC or the LLC:

• Room and board
• Transportation
• Insurance
• Medical expenses
• Student fees, unless required as a condition of enrollment or attendance
• Same expenses paid with tax-free educational assistance
• Same expenses used for any other tax deduction, credit or educational benefit

An eligible student for the AOTC is a student who:

• Was enrolled at least half time in a program leading toward a degree, certificate or other recognized educational credential for at least one academic period during the tax year,
• Has not completed the first four years of post-secondary (education after high school) at the beginning of the tax year,
• Has not claimed (or someone else has not claimed) the AOTC for the student for more than four years, and
• Was not convicted of a federal or state felony drug offense at the end of the tax year.

To claim the full credit, your MAGI, modified adjusted gross income must be $80,000 or less ($160,000 or less for married taxpayers filing jointly).

For most filers, it is the amount of your AGI, adjusted gross income, from your tax return.

• Foreign earned income exclusion
• Foreign housing exclusion
• Foreign housing deduction
• Exclusion of income by bona fide residents of American Samoa or Puerto Rico.

AOTC i.e. American Opportunity and Lifetime Learning Credits are Education Credits provided to students. The AOTC helps defray the cost of higher education expenses for tuition, certain fees and course materials for four years.

You do not have to itemize deductions in order to claim the American Opportunity Tax Credit. It's a credit, not a deduction. You can use the standard deduction and also claim the American Opportunity Tax Credit.

AOTC Calculation-

Credits are calculated as the sum of, 100% of the first $2,000 of qualified education expenses paid for the eligible student plus an additional 25% of the next $2,000 (25% of $2,000 = $500) for a total maximum claim of $2,500 per student per year. Anyone who falls within the income guidelines and is paying $4,000 or more in educational expenses per year will be eligible for the full $2,500.

Part A-

In the given case, the AGI of Becky is $61,000 which falls under the given limit of $80,000, assuming becky had completed all the other required conditions for elibility of claiming AOTC and hence is a eligible student for AOTC benefits.

Since becky had paid $1500 for college class, which are less than first eligible $2000 limit as mentioned above. Hence amount of education tax credits becky is eligible for is $1500.

Part B-

Name of Tax Credit she is eligible for is – “AOTC i.e. American Opportunity and Lifetime Learning Credits”