Problem set on credits

Problem set on credits - in qualifying higher education...

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1. Tom and Sally have three children, ages 6, 15, and 17. (a) What is their child tax credit? (b) What is their credit if their AGI is $125,016? ANS: (a) $2,000 ($1,000 for each child under 17). (b) Reduce the credit by $800 to $1,200. $125,016 - $110,000 = $15,016. Round up to $16,000 and reduce the credit by $50 per thousand ($50 x 16 - $800; $2,000 - $800 = $1,200). 2. Ted and Cindy have 4 children, ages 3, 5, 12, and 15. They spend a total of $11,400 on child care expenses. They each have earned income of $40,000 and their joint AGI is $90,000. What is their child care credit? ANS: $1,200. They have three qualifying children (under 13), but the maximum qualifying expenses they can use is $3,000 for one child, and another $3,000 for two or more, for a total of just $6,000. At their AGI level, the credit is 20% of the qualifying expenses: $6,000 x 20% = $1,200. 3. Sam and Doris have three children in college (all within their first 4 years of college). They pay $14,000
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Unformatted text preview: in qualifying higher education expenses for one, $8,000 for the second, and $3,600 for the third. (a) What is their education credit? (b) How does your answer change if the second and third children are in their 5 th or higher year of higher education? ANS: (a) The American Opportunity credit per student is 100% of the first $2,000 of expenses, and 25% of the next $2,000. So for the first two students, the credit is $2,500 each. For the third student the credit is $2,000 + (25% x $1,600) = $2,400. Total credit: $7,400. (b) In this case, the credit for student #1 would still be $2,500. For the remaining students, tho, the Lifetime Learning credit applies and it is limited to 20% of the first $10,000 of total expenses paid. Here, total expenses = $11,600 ($8,000 + $3,600). So the credit is $10,000 x 20% = $2,000. Total credit for all three students: $4,500....
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This note was uploaded on 09/30/2011 for the course ECO 373 taught by Professor Qq during the Spring '11 term at CUNY Hunter.

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