Problem 7-19 (Algorithmic) Education Tax Credits (LO 7.5)

Janie graduates from high school in 2021 and enrolls in college in the fall. Her parents (who file a joint return) pay $7,225 for her tuition and fees.

If required, round your computations to the nearest whole value.

Question Content Area

a. Assuming Janie's parents have AGI of $177,200, what is the American Opportunity tax credit they can claim for Janie?

ANSWER: ???

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The American Opportunity Tax Credit (AOTC) is an education credit available to help qualifying low-income and middle-income individuals defray the cost of higher education. The AOTC is a credit for students in their first 4 years of post-secondary education. The AOTC may be claimed for the expenses of students pursuing bachelor's or associate's degrees or vocational training. To be eligible, the student must meet certain requirements.

Like many other education tax benefits, the AOTC depends on an accurate computation of qualified higher education expenses. Qualifying expenses must be reduced by any tax-free scholarships, grants or other education assistance. There is a limitation on the dollar amount of the credit.

For 2021, the American Opportunity tax credit is phased out ratably for joint return filers with income between $160,000 and $180,000 and for single, head of household, or qualifying widow(er) filers with income between $80,000 and $90,000.

Question Content Area

b. Assuming Janie's parents have AGI of $70,880, what is the American Opportunity tax credit they can claim for Janie?

ANSWER: ???