Bob and Sally are married,file a joint tax return,have AGI of $108,000,and have two children.Del is beginning her freshman year at State College during Fall 2013,and Owen is beginning his senior year at Southwest University during Fall 2013.Owen completed his junior year during the Spring semester of 2011 (i.e.,he took a "leave of absence" during the 2012-2013 school year).Both Del and Owen are claimed as dependents on their parents' tax return.Del's qualifying tuition expenses and fees total $5,000 for the Fall semester,while Owen's qualifying tuition expenses were $6,100 for the Fall 2013 semester.Del's room and board costs were $3,200 for the Fall semester.Owen did not incur room and board costs since he lived with his aunt and uncle during the year.Full payment is made for the tuition and related expenses for both children at the beginning of each semester.In addition to the children's college expenses,Bob also spent $3,000 on professional education seminars during the year in order to maintain his license as a practicing dentist.Bob attended the seminars during July and August 2013.Compute the available education tax credits for Bob and Sally for 2013.
A)$3,100.
B)$5,000.
C)$5,480.
D)$5,600.
E)None of the above.

Question

Quizplus · Accepted Answer

First, we need to determine if Bob and Sally are eligible for the education tax credits. In order to qualify for the American Opportunity Tax Credit (AOTC) or Lifetime Learning Credit (LLC), the taxpayer must pay qualified education expenses for an eligible student. An eligible student must be the taxpayer, spouse, or a dependent for whom the taxpayer claims an exemption on their tax return. In this case, Del and Owen are both dependents of Bob and Sally, so they are eligible students for the tax credits.

Next, we need to determine if Bob and Sally meet the income limits for the tax credits. For the AOTC, the phaseout range for married filing jointly is $160,000 to $180,000. Since Bob and Sally's AGI of $108,000 is below this range, they are eligible for the full credit amount. For the LLC, the phaseout range for married filing jointly is $108,000 to $128,000. Again, since their AGI is below this range, they are eligible for the full credit amount.

For Del, Bob and Sally can claim the AOTC since she is an undergraduate student and the expense amount is greater than the room and board costs. The AOTC is calculated as 100% of the first $2,000 of qualified education expenses, plus 25% of the next $2,000, for a maximum credit of $2,500 per eligible student per year. In this case, Del's qualified education expenses are $5,000, so they can receive the maximum credit amount of $2,500.

For Owen, Bob and Sally can claim the LLC since he is a graduate student and the expense amount is greater than the room and board costs. The LLC is calculated as 20% of the first $10,000 of qualified education expenses, for a maximum credit of $2,000 per tax return. In this case, Owen's qualified education expenses are $6,100, so they can receive the maximum credit amount of $2,000.

Finally, Bob's professional education expenses of $3,000 also qualify for the LLC. So, the total education tax credits available for Bob and Sally are:

AOTC for Del: $2,500
LLC for Owen: $2,000
LLC for Bob: $980 ($3,000 x 20%)
Total: $5,480

Bob and Sally Are Married,file a Joint Tax Return,have AGI