Question

Debra is a junior at State College. To offset the cost of attending college full-time, Debra has a part-time job. During the tax year, Debra earned $8,000. Her parents also provide some support for her and claim her on their tax return. During the tax year, Debra paid $2,780 of her tuition bill and her parents paid $2,780. Debra also paid for her own books, which cost $460. Her parents helped her by paying part of her rent and grocery bill. After reading about refundable tax credits, Debra realized that she, or her parents, were eligible to claim the American Opportunity Credit. What is Debra's filing status, standard deduction amount, and taxable income for the year? Remember that she is claimed on her parents' tax return. (Round answers to O decimal place, e.g. 5275.) Debra's filing status i: single married Standard deduction amount is $ Taxable income for the year is $

Answer 1

As per IRS rules the following are eligible to American Opportunity Credit

To be eligible for AOTC, the student must:

• Be pursuing a degree or other recognized education credential
• Be enrolled at least half time for at least one academic period^* beginning in the tax year
• Not have finished the first four years of higher education at the beginning of the tax year
• Not have claimed the AOTC or the former Hope credit for more than four tax years
• Not have a felony drug conviction at the end of the tax year

Hence Debra is eligible for credit.  But if  Debra isa dependent, then she can't claim either credit.

Debra's filing status is Single.

And the Standard deduction available will be $2,500 tax credit per student

(100% first $2,000, 25% second $2,000)

40% refundable (up to $1,000)

Hence, Credit available will be $2500

And the material expenses $460 is eligible for deduction.

Debra's taxable income is ($8000-$460) = $7560

Tax Payable is $ (10% of $7560) = $756

if Debra is availing credit then, refundable credit is (40% of $2500) = $1000 and non-refundable credit is $1500.

If Debra's parents have assessed tax of $4830

Then refundable portion of credit is (40% of $2500) = $1000 and non-refundable credit is $1500

And Debra's parents can claim the credit.