DJ and Gwen paid $3,200 in qualifying expenses for their son, Nikko, who is a freshman attending the University of Colorado. DJ and Gwen have AGI of $170,000 and file a joint return. What is their allowable American opportunity tax credit (AOTC) after the credit phaseout based on AGI is taken into account?

Explanation:

The American Opportunity Tax Credit (AOTC) refers to a tax credit for qualified education expenses for a student for the first four years of post-secondary education for American taxpayers.

The credit repays you 100% of the first $2,000 of qualified education expenses for each eligible student.

The credit also repays 25% of the next $2,000 of qualified education expenses ($500).

Since the total qualified education = $3200

= ($2,000 × 100/100) + [($3,200 − $2,000) × 0.25]

= $2000 + ($1200 × 25/100)

= $2300

Supposed credit = $2,300

The modified annual gross income, MAGI requirements for a married couple filing jointly is $160000 < x < $180000

Since Dj and gwen have AGI of $170000 and they file jointly, they get partial credit:

= $2,300 × 1/2

= $1,150.

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