Question

Keith has a 2019 tax liability of $2,250 before taking into account his American Opportunity tax credit. He paid $2,600 in qualifying expenses, was a full-time student, was not claimed as a dependent on his parents' return, and his American Opportunity tax credit was not subject to phase-out. What is the amount of his American Opportunity tax credit allowed

Answer 1

Answer: $2150

Explanation:

From the question, Keith has a tax liability of $2,250 and paid $2,600 in qualifying expenses.

The amount of his American Opportunity tax credit allowed will be charged at 100% for the first $2000 and 25% for the next $2000. Since he paid $2600 in qualifying expenses, this will be:

= (100% × $2000) + (25% × [$2600 - $2000]

= $2000 + (0.25 × $600)

= $2000 + $150

= $2150

The amount of his American Opportunity tax credit will be $2150