Question

Keith has a 2019 tax liability of $2,250 before taking into account his American Opportunity tax credit. He paid $2,600 in qualifying expenses, was a full-time student, was not claimed as a dependent on his parents' return, and his American Opportunity tax credit was not subject to phase-out. What is the amount of his American Opportunity tax credit allowed?

a. $4,000

b. $2,250

c. $2,150

d. $0

e. $2,600

Answer 1

Answer to the Question is Option "b" i.e $2,150

1. Whether there is a Qualifying Expense? - Yes, Keith paid $2,600 in qualifying expenses.

2. Whether claimed as a Dependent? - No,  He was a full-time student and was no dependent on his parent's return

3. Calculation of Maximum Credit allowed:-

Maximum Allowed = $ 2,500 (Upto First $2000 = 100% of $2000; Next $2000 = 25.00% of $2000)

+ Credit from First $2000 = $2000 * 100.00% = $2000

+ Credit from Next Remaing Expense = ($2600-$2000) * 25.00% = $600*25.00% = $150

Total Credit Allowed under American Opportunity Tax Credit = $ 2000 + $150 = $2,150