American Opportunity Credit versus Education Credits under the

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American Opportunity Credit versus Education Credits under the Powered By Docstoc
					American Opportunity Credit versus Education Credits
 under the Heartland Disaster Tax Relief Act of 2008


Example 1:

Joe and Kay are married and file a joint return. In 2009 they claim an exemption for their
daughter Melissa who is in her second year of college. She attends a school in a
designated disaster county.

Her expenses for the year are:

       Tuition                   $5000
       Board and Room             3000
       Books                       800
       Total Expenses            $8800

MAGI = $70000
Taxable Income = $36000
Tax = $4569

Education Credit Computation:
       American Opportunity Tax Credit
              Qualifying Expenses - Tuition $5000
                                   Books $800
                                   Total $5800

               Credit = $2500
               Refundable Portion = $0

       Hope Credit
             Qualifying Expenses – Tuition $5000
                                   Books $800
                                   Board and Room $3000
                                   Total $8800

               Credit = $3600
Example 2:

The same facts as above except Melissa is in her fourth year of college.

Education Credit Computation:
       American Opportunity Credit
              Qualifying Expenses - Tuition $5000
                                   Books $800
                                   Total $5800

               Credit = $2500
               Refundable Portion = $0

       Lifetime Learning Credit
              Qualifying Expenses – Tuition $5000
                                    Books $800
                                    Board and Room $3000
                                    Total $8800

               Credit = $3520 ($8800 x 40%)

Example 3:

Same facts as example 1 except:

MAGI = $25000
Taxable Income = $0
Tax = $0

Education Credit Computation:
              American Opportunity Tax Credit
              Qualifying Expenses – Tuition $5000
                                    Books - $800
                                    Total $5800

               Credit = $2500 but no tax to apply it against
               Refundable Portion = $1000 ($2500 x 40%)

       Hope Credit
             Qualifying Expenses – Tuition $5000
                                    Books $800
                                    Board and Room $3000
                                    Total $8800
             Credit = $3600 but no tax to apply it against so no benefit