Question

Betty is an aspiring CPA. In 2020, she finished her last semester at San Diego State, where she graduated with an undergraduate degree in accounting. Betty was a full-time student and paid $3,500 in tuition and to San Diego State in 2020 and paid $750 for required textbooks. Betty already claimed the American Opportunity Tax Credit in 2017, 2018 and 2019.

Betty’s husband, Barry, is a nurse. He is also pursuing his Masters in Nursing at University of San Diego. In 2020, he spent $8,000 on tuition for his graduate program. Barry also paid $500 for required textbooks. The tuition and books were not reimbursed by Barry’s employer.

Betty and Barry will file a joint tax return for 2020, and neither can be claimed as a dependent on anyone else’s tax return. Their modified AGI is below the phaseout threshold for both the American Opportunity Tax Credit and Lifetime Learning Credit.

What is the maximum amount of education tax credits that Betty and Barry can claim on their 2020 tax return?

Answer 1

American Opportunity Credit

The American opportunity tax credit lets you claim all of the first $2,000 you spent on tuition, books, equipment and school fees — but not living expenses or transportation — plus 25% of the next $2,000, for a total of $2,500

Betty's expenses

=course fees+ Books ($3500+$750)=$4250

100% claim on 1st $2000 =$2000

25% claim on 2nd 2000=$500

So maximum tax credit is= $2500

The American opportunity credit is refundable You can still receive 40% of the American opportunity tax credit’s value — up to $1,000 — even if you earned no income last year or owe no tax. For example, if you qualified for a refund, this credit could increase the amount you’d receive by up to $1,000. That’s why the American opportunity credit is typically the best education tax break for students and their families.

Lifetime Learning Credit

You can claim 20% of the first $10,000 you paid toward tuition and fees in 2019, for a maximum of $2,000. Like the American opportunity tax credit, the lifetime learning credit doesn’t count living expenses or transportation as eligible expenses. But you can claim books or supplies needed for coursework.

Berry's expenses

=course fee +books($8000+$500)=$8500

=$8500

So LLTV =$8500×20%=$1700

maximum amount of education tax credits that Betty and Barry can claim on their 2020 tax return?

=$1700+$2500 = $4200