Part 1 - Scenario 3

Review the following scenario. Use the information provided to answer questions about the taxpayers 2020 return. Jake (27) and Nicole (26) Graham are married and filing a joint return. Jake was employed full-time during the year. Nicole worked part-time, and she was also a full-time student at State University. During the year, she paid $3,800 in tuition and fees, substantiated with Form 1098-T. She did not receive any scholarships during the year. Nicole meets all the requirements to qualify for the American Opportunity Tax Credit. The couples adjusted gross income is $47,000. Their tax on line 16 and on line 18 of their Form 1040 is $2,272. They had no additional taxes. To assist you in answering questions about the couples tax benefits for education, you may refer to the partially completed Credit Limit Worksheet, which is shown below. 2020 Form 8863 Credit Limit Worksheet Line 19 1. Enter the amount from Form 8863, line 18. _________ 2. Enter the amount from Form 8863, line 9. _________ 3. Add lines 1 and 2. ________ 4. Enter the amount from Form 1040 or 1040-SR, line 18. $2,272 5. Enter the total of your credits from Schedule 3 (Form 1040), lines 1 and 2, and the amount from Schedule R, line 22. $0 6. Subtract line 5 from line 4. $2,272 7. Enter the smaller of line 3 or line 6 here and on Form 8863, line 19. _________

Question 5

Page 2 of Nicole's partially completed Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), is shown below. Assuming they meet all the requirements, what amount can Jake and Nicole claim for the American Opportunity Tax Credit when they file their 2020 return?

Question 6

Assuming all other requirements are met, what is the couple's refundable portion of the American Opportunity Tax Credit? To assist you in answering this question, Page 1 of the Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), is provided below.

(1) Address. Number and street (or P.O. box). City, town or post office state, and ZIP code. If a foreign address, see instructions. ves NO NO STATE UNIVERSITY (1) Address. Number and street cor P.O. box). City, town or post office, state. and ZIP code. If a foreign address, see instructions. 4400 COLLEGE BOULEVARD YOUR CITY, YS XXXXX (2) Did the student roccivo Form 1008-T from this institution for 2020? (3) Did the student receive Form 1098-T from this institution for 2019 with box ves NO 7 checked? (4) Enter the institution's employer identification number (EIN) if you're claiming the American opportunity credit or if you checked "Yes" in (2) or (3). You can get the EIN from Form 1099-T or from the institution. XX-1234567 NO (2) Did the student receive Form 1098-T from this institution for 2020? Yes (3) Did the student receive Form 1098-T from this institution for 2019 with box Yes 7 checked? (6) Entor the institution's employer idontification numbor (EIN) if you're claiming the American opportunity creditor if you chocked "Yes" in (2) or (3). You can get the EIN from Form 1099-T or from the institution 23 Has the Hope Scholarship Credit or American opportunity Yes -- Stop! credit boon claimod for this student for any 4 tax years Go to linc 31 for this studiont. No -- Go to line 24. before 2020? 24 Was the student enrolled at least half-time for at least one academic period that began or is treated as having begun in 2020 at an eligible educational institution in a program leading towards a X Yes -- Go to line 25. No -- Stop! Go to line 31 postsecondary dogtec, certificate, or other recognized for this student postsecondary educational credential? See instructions, 25 Did the student complete the first 4 years of postsecondary Yes --Stop! education before 2020? See instructions. Go to line 31 for this NO -- Go to line 26. student 26 Was the student convicted, botoro the end of 2020. of a Yes -- Stop! lelony for possession or distribution of a controlled Go to line 31 for this No -- Complete lines 27 substance? student. through 30 for this student You can't take the American opportunity credit and the litotime learning credit for the same student in tho samo year. It CAUTION you complete Ines 27 through 30 for this student, don't complete line 31. American Opportunity Credit 27 Adjusted qualified education expenses (see instructions). Don't enter more than 84.000 27 28 Subtract $2,000 from line 27. If zero or less, enter -o- 28 29 Multiply line 28 by 25% (0.25) 30 If line 28 is zero, enter the amount from line 27. Otherwise, add $2,000 to the amount on line 29 and enter the result. Skip line 31. Include the total of all amounts from all Parts III, line 30, on Part I line 1 ......... 30 Lifetime Learning Credit 31 Adjusted qualified education expenses (see instructions). Include the total of al amounts from all Parts III, line 31, on Part II, line 10.. 31 EDA 20 88632 BWF 1910 Fm Softwarw Capyright "993-2921 HRB Tax Grcup, Ir. Forn 8863 (2020) 29 $450 $1,000 $2,450 $2,500 1 2 3 4 1.0000 8 9 After completing Part III for each student, enter the total of all amounts from all Parts III, line 30 Enter: $180,000 if married filing jointly: $90,000 if single, head of household, or qualifying widow(er) 2 180,000 3 Enter the amount from Form 1040 or 1040-SR, line 11. If you're filing Form 2555 or 4563, or you're excluding income from Puerto Rico, see Pub. 970 for the amount to enter... 47,000 4 Subtract line 3 from line 2. If zero or less, stop: you can't take any education credit .... 133,000 5 Enter: $20,000 if married filing jointly: $10,000 if single, head of household, or qualifying widow(er). 5 20,000 6 I line 4 is: Equal to or more than line 5, enter 1.000 on line 6. Less than line 5, divide line 4 by line 5. Enter the result as a decimal (rounded to at least three places)..... 7 Multiply line 1 by line 6. Caution: If you were under age 24 at the end of the year and meet the conditions described in the instructions, you can't take the refundable American opportunity credit, skip line 8, enter the amount from line 7 on line 9, and check this box 7 8 Refundable American opportunity credit. Multiply line 7 by 40% (0.40). Enter the amount here and on Form 1040 or 1040-SR, line 29. Then go to line 9 below Part II Nonrefundable Education Credits 9 Subtract line 8 from line 7. Enter here and on line 2 of the Credit Limit Worksheet (see instructions) 10 After completing Part III for each student, enter the total of all amounts from all Parts III, line 31. If zero, skip lines 11 through 17, enter -o- on line 18, and go to line 19 10 11 Enter the smaller of lino 10 or $10,000 11 12 Multiply line 11 by 20% (0.20)... 13 Enter: $138,000 it married filing jointly: $69,000 it single, head of household, or qualifying widow(er)... 13 14 Enter the amount from Form 1040 or 1040-SR, line 11. If you're filing Form 2555 or 4563, or you're excluding income from Puerto Rico, see Pub. 970 for the amount to enter.. 15 Subtract line 14 from line 13. If zero or less, skip lines 16 and 17, enter-O- on line 18, and go to line 19 15 16 Enter: $20,000 it married filing jointly: $10,000 it single, head of household, or qualifying widow(er).. 16 17 If line 15 is: Equal to or more than line 16, enter 1.000 on line 17 and go to line 18 Less than line 16, divide line 15 by line 16. Enter the result as a decimal (rounded to at least three places) 17 18 Multiply line 12 by line 17. Enter here and on line 1 of the Credit Limit Worksheet (see instructions) 18 19 Nonrefundable education credits. Enter the amount from line 7 of the Credit Limit Worksheet (see instructions) here and on Schedule 3 (Form 1040), line 3 19 For Paperwork Reduction Act Notice, see your tax return instructions. 20 88631 BWF 1040 Form Software Copyright 1996 - 2021 HRB Tax Group, Inc. 12 14 Form 8863 (2020) FDA $228 $980 $1,000 $2,450 (1) Address. Number and street (or P.O. box). City, town or post office state, and ZIP code. If a foreign address, see instructions. ves NO NO STATE UNIVERSITY (1) Address. Number and street cor P.O. box). City, town or post office, state. and ZIP code. If a foreign address, see instructions. 4400 COLLEGE BOULEVARD YOUR CITY, YS XXXXX (2) Did the student roccivo Form 1008-T from this institution for 2020? (3) Did the student receive Form 1098-T from this institution for 2019 with box ves NO 7 checked? (4) Enter the institution's employer identification number (EIN) if you're claiming the American opportunity credit or if you checked "Yes" in (2) or (3). You can get the EIN from Form 1099-T or from the institution. XX-1234567 NO (2) Did the student receive Form 1098-T from this institution for 2020? Yes (3) Did the student receive Form 1098-T from this institution for 2019 with box Yes 7 checked? (6) Entor the institution's employer idontification numbor (EIN) if you're claiming the American opportunity creditor if you chocked "Yes" in (2) or (3). You can get the EIN from Form 1099-T or from the institution 23 Has the Hope Scholarship Credit or American opportunity Yes -- Stop! credit boon claimod for this student for any 4 tax years Go to linc 31 for this studiont. No -- Go to line 24. before 2020? 24 Was the student enrolled at least half-time for at least one academic period that began or is treated as having begun in 2020 at an eligible educational institution in a program leading towards a X Yes -- Go to line 25. No -- Stop! Go to line 31 postsecondary dogtec, certificate, or other recognized for this student postsecondary educational credential? See instructions, 25 Did the student complete the first 4 years of postsecondary Yes --Stop! education before 2020? See instructions. Go to line 31 for this NO -- Go to line 26. student 26 Was the student convicted, botoro the end of 2020. of a Yes -- Stop! lelony for possession or distribution of a controlled Go to line 31 for this No -- Complete lines 27 substance? student. through 30 for this student You can't take the American opportunity credit and the litotime learning credit for the same student in tho samo year. It CAUTION you complete Ines 27 through 30 for this student, don't complete line 31. American Opportunity Credit 27 Adjusted qualified education expenses (see instructions). Don't enter more than 84.000 27 28 Subtract $2,000 from line 27. If zero or less, enter -o- 28 29 Multiply line 28 by 25% (0.25) 30 If line 28 is zero, enter the amount from line 27. Otherwise, add $2,000 to the amount on line 29 and enter the result. Skip line 31. Include the total of all amounts from all Parts III, line 30, on Part I line 1 ......... 30 Lifetime Learning Credit 31 Adjusted qualified education expenses (see instructions). Include the total of al amounts from all Parts III, line 31, on Part II, line 10.. 31 EDA 20 88632 BWF 1910 Fm Softwarw Capyright "993-2921 HRB Tax Grcup, Ir. Forn 8863 (2020) 29 $450 $1,000 $2,450 $2,500 1 2 3 4 1.0000 8 9 After completing Part III for each student, enter the total of all amounts from all Parts III, line 30 Enter: $180,000 if married filing jointly: $90,000 if single, head of household, or qualifying widow(er) 2 180,000 3 Enter the amount from Form 1040 or 1040-SR, line 11. If you're filing Form 2555 or 4563, or you're excluding income from Puerto Rico, see Pub. 970 for the amount to enter... 47,000 4 Subtract line 3 from line 2. If zero or less, stop: you can't take any education credit .... 133,000 5 Enter: $20,000 if married filing jointly: $10,000 if single, head of household, or qualifying widow(er). 5 20,000 6 I line 4 is: Equal to or more than line 5, enter 1.000 on line 6. Less than line 5, divide line 4 by line 5. Enter the result as a decimal (rounded to at least three places)..... 7 Multiply line 1 by line 6. Caution: If you were under age 24 at the end of the year and meet the conditions described in the instructions, you can't take the refundable American opportunity credit, skip line 8, enter the amount from line 7 on line 9, and check this box 7 8 Refundable American opportunity credit. Multiply line 7 by 40% (0.40). Enter the amount here and on Form 1040 or 1040-SR, line 29. Then go to line 9 below Part II Nonrefundable Education Credits 9 Subtract line 8 from line 7. Enter here and on line 2 of the Credit Limit Worksheet (see instructions) 10 After completing Part III for each student, enter the total of all amounts from all Parts III, line 31. If zero, skip lines 11 through 17, enter -o- on line 18, and go to line 19 10 11 Enter the smaller of lino 10 or $10,000 11 12 Multiply line 11 by 20% (0.20)... 13 Enter: $138,000 it married filing jointly: $69,000 it single, head of household, or qualifying widow(er)... 13 14 Enter the amount from Form 1040 or 1040-SR, line 11. If you're filing Form 2555 or 4563, or you're excluding income from Puerto Rico, see Pub. 970 for the amount to enter.. 15 Subtract line 14 from line 13. If zero or less, skip lines 16 and 17, enter-O- on line 18, and go to line 19 15 16 Enter: $20,000 it married filing jointly: $10,000 it single, head of household, or qualifying widow(er).. 16 17 If line 15 is: Equal to or more than line 16, enter 1.000 on line 17 and go to line 18 Less than line 16, divide line 15 by line 16. Enter the result as a decimal (rounded to at least three places) 17 18 Multiply line 12 by line 17. Enter here and on line 1 of the Credit Limit Worksheet (see instructions) 18 19 Nonrefundable education credits. Enter the amount from line 7 of the Credit Limit Worksheet (see instructions) here and on Schedule 3 (Form 1040), line 3 19 For Paperwork Reduction Act Notice, see your tax return instructions. 20 88631 BWF 1040 Form Software Copyright 1996 - 2021 HRB Tax Group, Inc. 12 14 Form 8863 (2020) FDA $228 $980 $1,000 $2,450