14-52 American Opportunity Tax Credit and Lifetime Learning Credit . Lou and Ste
ID: 2587981 • Letter: 1
Question
14-52 American Opportunity Tax Credit and Lifetime Learning Credit. Lou and Stella North are married, file a joint return, and have two dependent children in college. Phil and Jaci. Phil attends a state University in a neighboring state, and Jaci attends a State University in their home state. Neither receives any type of financial assistance. The Norths’ modified AGI in 2017 is $122,000. The children’s classifications and expenses are as follows:
Spring Semester 2017 Fall Semester 2017
(Paid in January 2017) (Paid in July 2017)
Phil: Senior Master’s Candidate
Tuition $7,500 $8,000
Laboratory fees 500 500
Student Activity Fees 100 100
Course Materials (books) 400 450
Room and Board 3,200 3,200
Jaci: Sophomore Junior
Tuition $1,600 $1,750
Student Activity fees 100 100
Course Materials 250 300
Room and Board 3,500 3,700
Compute any education credit that the Norths may claim in 2017.
How would your answer in Part a change if Phil received an academic scholarship of $3,000 (Excluded from gross income for each semester?
How would your answer in Par a change if Lou and Stella’s modified AGI was $175,000?
How would your answer in Part a change if Phil had been a junior during Spring semester and a senior during Fall Semester?
Explanation / Answer
Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution.
For AOTC , expenses for books, supplies and equipment the student needs for a course of study are included in qualified education expenses even if it is not paid to the school.
The limit of AGI for claiming AOTC is $160000 for joint filers ($80,000 for single filers).
As their combined AGI is $122000, they are eligible for AOTC credit of $5000 (2500*2 children)
b. Even if Phil receives an academic scholarship of $3000, they are still eligible for tax credit, as mentioned above, as the total eligible education expenses exceed the scholarship amount of $3000, by more than $2500 (which is the credit amount per child).
Note: All the expenses listed in the question are eligible education expense, except the Room & Board expense, which is not eligible.
3. If Lou & Stella’s modified AGI was $175000, the credit is only partially allowed. If exceeds, $180000, the credit is not allowed.
4. The answer will be same even if Phil was a junior during spring semester and a senior during Fall semester. The condition for eligibility is “the student must be enrolled in a program that leads to an associates or bachelors degree or some other recognized credential”. However, it may be noted that credit is not allowed for a student who has completed the first four years of post-secondary education as of the beginning of the year.
It may be noted that AOTC and Lifetime learning credit are mutually exclusive. If you claim AOTC, then LLC is not allowed. LLC limit is $2000 per return filed & hence less beneficial than AOTC. However, beyond 4 years of higher education, LLC can be availed as AOTC is not permissible.
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