Question

In 2017, Elaine paid $2,800 of tuition and $640 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. what is Elaine AGI at $83,200.

b. what is Elaine AGI at $166,000

Answer 1

a.

American opportunity credit:
Total expenses
Tuition	2800
Books	640
Total eligible expenses	3440
Expenses:	Credit %	Credit amount
First 2000	100%	2000
Balance 1440	25%	360
Total credit		2360

b. since AGI is between 160000-180000, it is subject to phase out.

credit limit amount is subject to phase out

amount of phase out= 2500* (163000-160000)/(180000 -160000) = 2500* 0.15= 375

Maximum eligible credit = 2500-375= 2125

since calculated credit 2360 is more than eligible credit of 2125, hence maximum allowable credit is only 2125.