Question

anie graduates from high school in 2017 and enrolls in college in the fall. Her parents (who file a joint return) pay $10,225 for her tuition and fees. If required, round your computations to the nearest whole value. a. Assuming Janie's parents have AGI of $165,000, what is the American Opportunity tax credit they can claim for Janie? $ b. Assuming Janie's parents have AGI of $66,000, what is the American Opportunity tax credit they can claim for Janie? $

Answer 1

The eligible AOTC is 100% of the first $2,000 incurred and 25% of the next $2,000 incurred. Hence, maximum deduction that can be claimed is $2,500.

If the AGI of the parents filling jointly is upto $160,000 then complete Deduction is allowed.

If the AGI of the parents filing jointly is more than 160,000 but upto $180,000 then reduced deduction is allowed.

If the AGI of the parents filling jointly is more than $180,000 then no AOTC deduction is allowed.

The Expenses incurred on tution fees is $10,225 which is more than $4,000. Hence, maximum eligible deduction is $2,500.

a) When AGI is 165,000

Difference between top threshold and AGI = 180,000 - 165,000 = 15,000

Then, 5,000 / 20,000 = 25%

Deduction disallowed = 2,500 × 25% = 625

Deduction allowed = 2,500 - 625 = $1,875

b) If AGI is $60,000

If AGI is $60,000, then entire $2,500 is allowed as AOTC deduction.