Keith has a 2017 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?

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Quizplus · Accepted Answer

The American Opportunity tax credit is calculated by taking 100% of the first $2,000 of qualifying expenses and 25% of the next $2,000, for a maximum credit of $2,500. In this case, Keith's qualifying expenses were $2,600, but the maximum credit he can receive is $2,500. Since his tax liability was $2,250, the credit reduces his liability to $0 and any remaining credit cannot be refunded to him. Therefore, the amount of his American Opportunity tax credit allowed is $2,150 ($2,500 maximum credit minus $350 needed to reduce tax liability to $0).

Keith Has a 2017 Tax Liability of $2,250 Before Taking