Question

# DJ and Nicolette paid \$1,600 in qualifying expenses for their daughter Nicole to attend the University...

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.

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.

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