Question

DJ and Nicolette paid $1,600 in qualifying expenses for their daughter Nicole to attend the University of Nevada. Nicole is a sophomore. DJ and Nicolette's AGI is $175,000. What is their maximum allowable American opportunity tax credit after the credit phase-out based on AGI is taken into account? Show Work.

Answer 1

Amount of credit is 100% of qualified educational expenses up to $2,000 and 25% of next $2,000.

In the given case amount of credit before phase out = $1,600 * 100% = $1,600

But when AGI of married couple exceed $160,000 amount of credit is subject to phase out until it reaches $180,000.

Thus, after application of phase out limits, credit = $1,600 * ($180,000 - $175,000)/ ($180,000 - $160,000) = $400

Total credit is $400 out of that $160 is refundable and balance $240 is non-refundable.