Keith has a 2019 tax liability of $2,250 before taking into account his American Opportunity tax 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 tax credit was not subject to phase-out. What is the amount of his American Opportunity tax credit allowed?

Question

Quizplus · Accepted Answer

The American Opportunity tax credit is equal to 100% of the first $2,000 of qualifying expenses and 25% of the next $2,000 of qualifying expenses, for a maximum credit of $2,500 per eligible student. Since Keith paid $2,600 in qualifying expenses, he can claim the maximum credit of $2,500. However, his tax liability is only $2,250, so he can only claim a credit of $2,250. Therefore, the answer is B) $2,150 ($2,250 tax liability - $2,500 maximum credit = -$250, but the credit cannot reduce the tax liability below zero, so the credit is limited to $2,250 - $2,000 = $250).

Keith Has a 2019 Tax Liability of $2,250 Before Taking