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How to calculate the American Opportunity Tax Credit (AOTC) ?

I am using TurboTax, if I don't enter the $12106 tuition, I owe $1555 tax. After adding the $12106 tuition, I owe $555 tax. Based on American Opportunity Tax Credit (AOTC)  rules, I should not owe any tax after adding the tuition fee. Instead, I should get back ($2500 - $1555)*0.4 = $378 credit. , right? However TurboTax just show that I can only get $1000 American Opportunity Tax Credit (AOTC), and I still need to pay $555 tax. Who can help to look into this? Many thanks! 

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2 Best answer

Accepted Solutions
DaveF1006
Expert Alumni

How to calculate the American Opportunity Tax Credit (AOTC) ?

Since you are using Turbo Tax Home and Biz, I think i know why your AOTC credit is limited. Let me have you go to the forms mode in your return. Check line 16 in the 1040 and see if that is zero. If so your AOTC is limited to $1000.

 

There are two components to a AOTC.  There is a non-refundable credit that has a limit of $1500.  What this credit does is reduce the tax liability that is on line 16.  If there is no tax liability listed, then you cannot take advantage of any part of the non-refundable amount.

 

You are eligible for the maximum refundable credit of $1000 even if you have no tax liability listed on line 16.

 

I imagine you owe taxes because the amount you owe is SE tax generated from your Schedule C since you are using the Home and Business version of Turbo Tax. 

 

Have a great year and see you back next year, we hope.

 

@KarenHL 

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View solution in original post

Hal_Al
Level 15

How to calculate the American Opportunity Tax Credit (AOTC) ?

It sounds like you're just looking in the wrong place.  

Q.  I should get back ($2500 - $1555)*0.4 = $378 credit. , right?

A. No. The math doesn't work that way. 

$2500 x 0.4 = $1000 on line 29 on form 1040. The $1500 goes on line 20 (via schedule 3).  The $1000 comes from line 8 of form 8863 and the $1500 form line 19. 

View solution in original post

2 Replies
DaveF1006
Expert Alumni

How to calculate the American Opportunity Tax Credit (AOTC) ?

Since you are using Turbo Tax Home and Biz, I think i know why your AOTC credit is limited. Let me have you go to the forms mode in your return. Check line 16 in the 1040 and see if that is zero. If so your AOTC is limited to $1000.

 

There are two components to a AOTC.  There is a non-refundable credit that has a limit of $1500.  What this credit does is reduce the tax liability that is on line 16.  If there is no tax liability listed, then you cannot take advantage of any part of the non-refundable amount.

 

You are eligible for the maximum refundable credit of $1000 even if you have no tax liability listed on line 16.

 

I imagine you owe taxes because the amount you owe is SE tax generated from your Schedule C since you are using the Home and Business version of Turbo Tax. 

 

Have a great year and see you back next year, we hope.

 

@KarenHL 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
Hal_Al
Level 15

How to calculate the American Opportunity Tax Credit (AOTC) ?

It sounds like you're just looking in the wrong place.  

Q.  I should get back ($2500 - $1555)*0.4 = $378 credit. , right?

A. No. The math doesn't work that way. 

$2500 x 0.4 = $1000 on line 29 on form 1040. The $1500 goes on line 20 (via schedule 3).  The $1000 comes from line 8 of form 8863 and the $1500 form line 19. 

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