Answer:
The American Opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. A taxpayer whose modified adjusted gross income (MAGI) is $80,000 or less (and $160,000 or less for joint filers) can claim the credit for the qualified expenses of an eligible student.
A MAGI between $80,000 and $90,000 will have a partial credit at a reduced rate applied for single taxpayer while for married couples that file jointly between $160,000 and $180,000.
To calculate for Janie whose parents fall under the partial or phased out credit, the formula below is applied:
Credit = Credit without phaseout * {(MAGI limit - MAGI) / Phaseout Range}
Janie's tuition and fees is $4,000
∴ credit without phaseout = 100% of 2000 + 25% of 2000 = $2500
MAGI limit = $180,000
MAGI = $170,000
Phaseout limit = $180,000; phaseout threshold = $160,000
∴ Phaseout range = $20,000
Credit to be claimed = 2500 * {{180000 - 170000) / 20000}
= 2500 (10000/20000)
=$1,250
Explanation:
