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In 2020, Elaine paid $2,600 of tuition and $1,320 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 tax credit that Elaine can claim for the tuition payment and books in each of the following alternative situations? (Leave no answer blank. Enter zero if applicable.) b. Elaine’s AGI is $174,500. (Round your intermediate calculations to the nearest whole dollar amount.)

Answer :

jepessoa

Answer:

$667.50

Explanation:

Assuming that Elaine's son goes to a qualifying university, then the AOTC covers expenses like tuition, books, supplies and materials.

The first $2,000 are fully deductible, and then you can deduct up to 25% of the next $2,000. Total maximum deduction possible = $2,500 per year.

Since Elaine's AGi is $174,500, she will not be able to claim the full deduction. If their AGI had been below $160,000, then Elaine could have claimed $2,000 + (25% x $1,920) = $2,480  

Since the AOTC phases out evenly, then Elaine's reduction = $2,500 x ($14,500 / $20,000) = $1,812.50

Elaine will be able to claim $2,480 - $1,812.50 = $667.50

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