American Opportunity Tax Credit Calculation for DJ and Gwen
What is the allowable American Opportunity Tax Credit for DJ and Gwen?
DJ and Gwen paid $3,880 in qualifying expenses for their son, Nikko, who is a freshman attending the University of Colorado. They have AGI of $170,000 and file a joint return. What is their allowable American Opportunity Tax Credit?
Answer:
DJ and Gwen would be eligible for the American Opportunity Tax Credit given their Adjusted Gross Income (AGI) of $170,000 and the qualifying expenses of $3,880. They would receive a $2,000 credit for the first $2,000 of expenses, and $470 for the remaining part, for a total credit of $2,470.
Explanation: The American Opportunity Tax Credit is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. In the case of DJ and Gwen, with an AGI of $170,000 and the qualifying expenses of $3,880, they meet the criteria to receive this tax credit.
The full credit is available for individuals with a modified adjusted gross income (MAGI) of $80,000 or less, or $160,000 or less for married couples filing jointly. As DJ and Gwen's AGI is $170,000, they fall within the income threshold to qualify for the credit.
The American Opportunity Tax Credit provides a 100% credit for the first $2,000 of qualified education expenses and 25% of the next $2,000. In this case, DJ and Gwen paid $3,880 in qualifying expenses. Therefore, they will receive a $2,000 credit for the initial $2,000 and a $470 credit for the remaining $1,880 (25% of $1,880), resulting in a total credit of $2,470 for them.
Therefore, the allowable American Opportunity Tax Credit for DJ and Gwen is $2,470.