Question

In 2018, Elaine paid $2,360 of tuition and $780 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 credit that Elaine can claim for the tuition payment and books in each of the following alternative situations? a. Elaine’s AGI is $101,000. b. Elaine's AGI is $161,500 c. Elaine's AGI is $230,000

Answer 1

Formula sheet

A	B	C	D	E	F	G	H	I	J	K	L	M
2
3		A single taxpayer with AGI of 80,000 or less and joint taxpayer with AGI 160,000 or less are eligible for American opportunity tax credit.
4		Phaseout of credit occurs for single taxpayers for AGI between $80,000 and $90,000 and for joint tax filers between $160,000 and $180,000.
5		The credit is not available to taxpayers whose AGI exceeds the $90,000 for single taxpayers and $180,000 for filling jointly.
6
7		It is calculated by adding 100% of first $2000 and 25% of next $2000. However the maximum annual credit is $2,500 per student.
8
9		a)
10		AGI	101000
11
12		Since the taxpayer is filling jointly and AGI is below $160,000,
13		therefore American Tax Credit may be claimed.
14
15		Tuition Fee	2360
16		Books	780
17		Total qualifying expenses	=SUM(D15:D16)
18
19		American opportunity tax credit	= 100%* $2000+25%*($3,140-$2,000)
20			=100%*2000+25%*(D17-2000)	=100%*2000+25%*(D17-2000)
21
22		Hence American opportunity tax credit is	=D20
23
24		b)
25
26		AGI	161500
27
28		Since the taxpayer is filling jointly and AGI is between $160,000-$180,000,
29		therefore American Tax Credit will phase out.
30
31		As calculated above,
32		American opportunity tax credit	=D20
33
34		Minimum level of phaseout range	160000
35		Maximum level of phaseout range	180000
36		Phase out Range	=D35-D34	=D35-D34
37
38		Phase out %	= (AGI - Minimum level of phaseout range)/Phaseout Range
39			=(D26-D34)/D36	=(D26-D34)/D36
40
41		Thus the taxpayer must reduce the credit amount by 7.50%.
42
43		American opportunity tax credit to be claimed	=$2,285 - 7.50%*$2,285
44			=D32-D39*D32
45
46		Hence American opportunity tax credit to be claimed	=D44
47
48		c)
49
50		AGI	230000
51
52		Since the taxpayer is filling jointly and AGI is above $180,000,
53		therefore American Tax Credit cannot be claimed.
54
55		Hence American tax credit	0
56