Question

Lou and Stella North are married, file a joint return, and have two dependent children in college, Phil and Jaci. Phil attends a State University in a neighboring state, and Jaci attends a State University in their home state. Neither receives any type of financial assistance. The Norths’ modified AGI in 2022 is $122,000. The children’s classifications and expenses are as follows: a. Compute any education credits that the Norths may claim in 2022. b. How would your answer in Part a change if Phil received an academic scholarship of $3,000 (excluded from gross income) for each semester

Answer 1

a. The Norths may be eligible for education credits in 2022, such as the American Opportunity Credit. b. Phil's academic scholarship would not affect the computation of education credits.

Step-by-step explanation:

a. To compute the education credits that the Norths may claim in 2022, we need to consider the two available credits: the American Opportunity Credit (AOC) and the Lifetime Learning Credit (LLC). The AOC can be claimed for up to $2,500 per eligible student, and the LLC can be claimed for up to $2,000 per tax return. However, there are income limits for both credits. Since the Norths' modified AGI is $122,000, they are eligible for a reduced AOC and not eligible for the LLC.

b. If Phil received an academic scholarship of $3,000 (excluded from gross income) for each semester, it would not affect the computation of education credits. Scholarships that are tax-free and used for qualified education expenses do not reduce the amount of education credits that can be claimed.