Keith has a 2014 tax liability of $2,250 before taking into account his American Opportunity 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 credit was not subject to phase out. What is the amount of his American Opportunity credit allowed?

Question

Quizplus · Accepted Answer

The American Opportunity credit is worth up to $2,500 per year per eligible student, but it is only allowed to the extent that it offsets your tax liability. In this case, Keith's tax liability before the credit is $2,250, and his qualifying expenses of $2,600 exceed that amount, so he should be eligible to claim the full $2,500 credit. However, the credit is nonrefundable, which means that it can only reduce your tax liability to $0 - you cannot receive any money back beyond that point. Therefore, the maximum credit Keith can claim is $2,250 (equal to his tax liability before the credit). Any excess credit would need to be carried forward to future years or forfeited.

Keith Has a 2014 Tax Liability of $2,250 Before Taking