Billy just finished his third year of college and is pursuing a degree in busine
ID: 2565827 • Letter: B
Question
Billy just finished his third year of college and is pursuing a degree in business full-time. He is not claimed as a dependent on his parents’ tax return. Billy paid $6,000 in tuition during the tax year, and spent $700 on books and supplies. He also received a scholarship in the amount of $3,500 not including any Pell grants. It has been determined that it will be to Billy’s advantage to claim an education credit over a Tuition and Fees Deduction. Choose the correct summary below:
a. Billy will claim the American Opportunity Credit and claim $2,500 in education expenses.
b. Billy will claim the American Opportunity Credit and claim $3,200 in education expenses.
c. Billy will claim the Lifetime Learning Credit and claim $2,500 in education expenses.
d. Billy will claim the Lifetime Learning Credit and claim $3,200 in education expenses.
Jane is 30 years old and has a four-year degree in English. She decided to pursue a master’s degree and completed her first year during the tax year. She paid $8,000 in tuition and spent $500 on books purchased at the campus bookstore. Jane also purchased a laptop for $700 that she uses for school and personal use. It has been determined that it will be to Jane’s advantage to claim an education credit over a Tuition and Fees Deduction. Choose the correct summary below:
a. Jane will claim the American Opportunity Credit and claim $4,000 in education expenses.
b. Jane will claim the American Opportunity Credit and claim $8,500 in education expenses.
c. Jane will claim the Lifetime Learning Credit and claim $8,500 in education expenses.
d. Jane will claim the Lifetime Learning Credit and claim $9,200 in education expenses
Explanation / Answer
In the question it is given that it is advantage to to Billy and Jane to claim an education credit over a Tution and Fees deduction.
Maximum deduction of tax credit of $2,500 can be calimed on a qulaified expenses incurred by the Billy and Jane. To claim tax credit of $2,500, maximum qualified expensed will be $4,000. It is important to note that actal qualified expenses will be reduced by the amount of scholerhip recieved by taxpayers while ascertaining qualified expenses to determine eligible tax credit.
Billy and Jane will receive a tax credit based on 100 percent of the first qualified expenses $2,000, plus 25 percent of the next qualified expenses $2,000, paid during the taxable year for tuition, fees and course materials.
Answer to part 1 of the question.
a. Billy will claim the American Opportunity Credit and claim $3,200 in education expenses.
Answer to part 1 of the question.
a. Jane will claim the American Opportunity Credit and claim $4,000 in education expenses.
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