Martina is single and has two children in college. Matthew is a sophomore and Ch

Question

Martina is single and has two children in college. Matthew is a sophomore and Christine is in her fifth year of college. Martina pays $3,600 in tuition and fees for Matthew, $700 for textbooks, and $2,000 for his room and board. Christine’s tuition and fees are $4,800, her textbooks are $550, and her room and board expenses are $1,800. Martina’s adjusted gross income is $57,000.

a. Martina can claim $ as a tax credit for the higher education expenses.

b. Assume that Martina's adjusted gross income is $83,000, then she can claim $ as a tax credit for the higher education expenses.

Explanation / Answer

a)

Martina can claim an American Opportunity Tax Credit (AOTC) for Matthew and theLifetime Learning Tax Credit for Christine.Only the expenses incurred for tuitionand fees and textbooks are eligible for the AOTC.Because Matthew’s qualifyingexpenses of $4,300 ($3,600 + $700) exceed $4,000, Martina can claim the maximumAOTC of $2,500 [($2,000 x100%)+($2,000x25%)].Christine is not eligible for the AOTC because she is in her fifth year of study.Onlytuition and fees are qualifying expenses in calculating the LLTC.Martina can claima LLTC of $960 ($4,800x20%).Because Martina’s adjusted gross income exceeds$51,000, her LLTC must be reduced using the following formula:

Tax credit percentage =Adjusted gross income- $51,000 / $10,000

57000 - 51000 /10000 = 60%

Tax credit allowed= Calculated tax credit x (1 - tax credit percentage)

= 960 (1 - 60%)

= 384

b) Because Martina’s adjusted gross income exceeds $61,000, she is not eligible toclaimthe LLTC and must reduce the amount of her AOTCusing the followingformula:

Tax credit percentage=Adjusted gross income- $80,000 / 10000

Tax credit allowed=Calculated tax credit x (1 - tax credit percentage)

30%=$83,000- $80,000 / $10,000

$1,750 =$2,500x(1-30%)

Martina's higher education tax credit is $1,750 ($1,750AOTC for Sophia+$0LLTC for Christine).

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