Posted: November 23rd, 2015



Educational Credits


The American Opportunity and Lifetime Learning Credits were extended to
December 31, 2017.  You may be eligible to claim tax credits on your next
tax return.
1.   Go to and click on “Forms & Pubs”
2.   Click on “Current Forms and Pubs” and type “8863” in the FIND box.
3.   Click on “Inst 8863” and print all six (6) pages.
4.   Answer the questions below on the answer sheet.

A.  Overview of Educational Tax Credits
Section 1 – Questions:
1.   How many years may you claim the American Opportunity Credit?
2.   If all of my educational expenses were paid by my employer as a tax
free benefit, then are you eligible for the educational credit?
3.   If your tuition is paid through loans, then are you eligible for
educational credit?
4.   If you claimed the American Opportunity Credit the past four years,
then what alternative is there to claim a credit for your tuition in
the fifth and subsequent years?
5.   VA Tech and other colleges require freshman to own a computer.  Can
the cost of the computer be claimed as part of an educational credit?
6.   If a student has a felony drug conviction on their record, then
which, if any, educational credit can they claim?
7.   If you are an undergraduate student with no declared major, then
which, if any, credit can you claim?
8.   Your parents claim you and their Modified Adjusted Gross income is
$160,000.  Which if any educational credit can my parents claim?
9.   Your parents claim you on their income tax return, but pay nothing
towards my college expenses.  You pay it all with loans.  Who can
claim the educational credit?
10.    You paid tuition of $1,500 for fall 2015.  In December 2015,
you paid $2,000 in tuition for the spring.  Can you elect to include
the $2,000 as a 2015 qualifying expense?

A.  Overview of Educational Tax Credits

1.   Room and board may be claimed on which, if any, educational credit?
2.   Under what condition may the tuition of a bowling class be included
as part of your educational expenses?
3.   If your spouse and you are both students and decide to file as
“married filing separately”, then can you claim your educational
expenses and your spouse claim their educational expenses?
4.   Can you claim your college parking fee as an educational expense for
the credit?
5.   If you put your tuition on a credit card, then can you claim the
educational credit?
6.   If your tuition is $5,000 and you receive a $3,000 Pell grant, then
how much can you claim towards the educational credit?
7.   What qualification must institutions of higher learning possess to be
an “Eligible Educational Institutions”?
8.   What other costs may be added to the tuition reported on the college
Form 1098-T as qualifying educational expenses?

A.   The Mathematics of the American Opportunities Credit

The calculations necessary for the American Opportunities Credit is what
mathematicians call a step function.  The eligible expense dictates which
formula used to calculate the credit.  Below is an algebraic expression of
the formulas.

The translation of the formulas into words is:
a.   You receive a dollar for dollar credit for the first $2,000 of
educational expenses,
b.   If the educational expense is between $2,000 and $4,000, then you
receive a credit of $2,000 plus 25% of the expense over $2,000.
c.   If your educational expense exceeds $4,000, the credit is capped at
a.   If you paid $1,567 in educational expenses, then your credit is
b.   If you paid $2,400 in educational expenses, then your credit is
$2,100.  The math is: $2000 + .25 (2400-2000) = $2000 + .25 (400) =
$2000 + 100 = $2,100
c.   If you paid $5,000 in educational expenses, then your credit is
$2,500 – the maximum credit allowed.
d.   pastedGraphic_3.png
A.    Questions Math problems

Determine your educational credit based on the scenarios listed below.
1.   Your total educational expense was $3,000.
2.   Your tuition was $1,500 and room and board was $5,000.
3.   Your tuition was $2,000, books were $500, and required enrollment
fees were $300.
4.   Your tuition was $2,500 and parking tickets were $500.
5.   Your educational expenses were $6,000 and you received a scholarship
of $4,800
6.   Your educational expenses were $6,000 and you received a loan of

A.   The Mathematics of the American Opportunities Credit
Refundable Credit

As with all tax code, just because you are eligible for a credit does not
mean that you will receive it.  After you subtract your exemptions and
deductions from your adjusted gross income, you arrive at your taxable
income.  Your tax is calculated (line 46 on Form 1040).  Often your credit
exceeds the tax you owe.  Prior to 2009, if your credit was $2,000 and your
tax was $1,500, then your credit eliminated your $1500 tax, but you lost
the other $500 credit.
Beginning in 2009, the tax code was amended to allow a 40% refundable
credit for the unused balance from the Educational Credit.  In the
illustration listed above, you would receive the $1,500 credit to eliminate
your tax liability plus 40% of the $500 unused credit.  The calculations
are $500 * .40 = $200 refundable credit.  This additional $200 refundable
credit appears on line 66 of the Form 1040.  The refundable credit is
limited to $1,000. There are many more restrictions on the Educational
Credit, but they are beyond the scope of this exercise.

1.   Your tax is $1,200 and your credit is $2,500.  What, if any, is your
refundable amount?
2.   Your tax is $1,200 and your credit is $1,000.  What, if any, is your
refundable amount?
3.   You are a 30 year old full time student living on student loans with
no taxable income.  You have the maximum Educational Credit of
$2,500.  If you file a tax form, then what refund will you receive?
4.   Your tax is $1800 and credit is $2,200.  What is your refundable

A.    Comprehensive Problems

Using all of the information presented previously to complete the
following problems.  Assume that the individuals in the example claim
themselves and are not subject to any of the limitations for students
under the age of 24.


A.   Julie’s tuition is $1,500 and her tax liability is $1,800.
1.   How much of the educational credit is applied to Julie’s tax
2.   How much is still owed to the IRS?

A.   Jim pays $2,000 in tuition, $600 for books, and $300 for required
enrollment fees.  His tax is $1,500
1.   After the educational credit is applied, what is your tax liability?
2.   What amount is Jim’s refundable credit?

A.   McKenzie paid $7,000 for tuition, $6,000 for room and board, $800 for
textbooks, $1,200 for a computer required for her accounting classes,
$200 in required enrollment fees, $600 for art supplies required for
her art class, $250 for medical health fees, $100, for parking
sticker, and $150 for student activity fee.  McKenzie received a
$6,000 scholarship to be applied to her tuition, $2,000 from her
grandmother, and $8,000 from a student loan.  Her tax liability is

1.   List the categories that qualify for the educational credit?
2.   What is the total of McKenzie’s eligible expenses?
3.   How much is her educational credit?
4.   After deducting her tax liability determine Julie’s refundable


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