Stephanie and Cal have three dependent children in college.Sally is a freshman and Teri is a sophomore at a small private college in their town where their expenses are $6,500 per year for each student; Lexi is in her third year of medical school in Wisconsin and her related expenses are $12,500 per year.What is the maximum education credit allowed Stephanie and Cal on their joint tax return if their AGI is $126,000 in 2019 and the LLC phaseout range is $116,000 - $136,000?

Question

Quizplus · Accepted Answer

The maximum education credit allowed for Stephanie and Cal on their joint tax return is determined by the American Opportunity Credit (AOC) and the Lifetime Learning Credit (LLC). The AOC is up to $2,500 per eligible student for the first four years of higher education, and the LLC is up to $2,000 per tax return, not per student, for tuition and fees for eligible students enrolled in eligible educational institutions. Since Sally and Teri are in their first and second years of college, they could potentially qualify for the AOC, while Lexi, being in medical school (beyond the first four years of post-secondary education), would only be eligible for the LLC. However, because Stephanie and Cal's AGI is within the LLC phaseout range, their credit amount would be reduced. Given the phaseout, they would not get the full credit for all three children but can still receive a reduced amount. The maximum credit they could aim for under these circumstances would be the AOC for Sally and Teri ($2,500 each, potentially) and the LLC for Lexi, but since the LLC is limited to $2,000 per return and their AGI is within the phaseout range, the total maximum credit they could claim would be reduced. The closest option to a plausible maximum, considering the phaseout and the limits of both credits, is $6,000, which assumes the maximum AOC for two students and a reduced LLC for the third, within the phaseout limitations.

Stephanie and Cal Have Three Dependent Children in College