Question

What is the refundable portion of the aotc that the cumberlands qualify to claim?

a. $1,000
b. $1,500
c. $2,000
d. $2,500

Answer 1

The refundable portion of the AOTC is 40% of the credit that exceeds the taxpayer's liability, up to a maximum of $1,000. If the Cumberlands qualify for the full credit, the refundable portion they could claim would be $1,000.

Step-by-step explanation:

The question relates to the American Opportunity Tax Credit (AOTC), which is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. When the AOTC is calculated, it allows a taxpayer to reduce their tax liability on a dollar-for-dollar basis, and in certain situations, part of the credit may be refunded if it exceeds the taxpayer's liability.

How the AOTC Works

The AOTC can be claimed at 100% for the first $2,000 of qualified education expenses and 25% of the next $2,000, making the maximum credit $2,500 per eligible student. If the credit brings the tax owed to zero, 40% of the remaining amount of the credit (up to $1,000) may be refundable. This refundable portion is especially helpful to those who might not owe a lot in taxes.

Calculating the Refundable Portion

To answer the question: 'What is the refundable portion of the AOTC that the Cumberlands qualify to claim?' we must look at the refundable part of the credit. Given the maximum refundable amount is $1,000, which is 40% of the maximum credit amount, the correct answer would be 'a. $1,000', assuming they qualify for the full credit.

Answer 2

The American Opportunity Tax Credit offers up to $2,500 per eligible student, with 40% of the credit being refundable up to $1,000. If the Cumberlands qualify for the full credit and owe no taxes, then the refundable portion they can claim is $1,000. Option A is the correct answer.

Step-by-step explanation:

The question is asking about the refundable portion of the American Opportunity Tax Credit (AOTC) that a taxpayer can claim. The AOTC is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. Up to $2,500 of the AOTC is available per eligible student, but the amount you can claim depends on your income and the amount of your qualified education expenses.

The AOTC is partially refundable. If the credit brings the amount of tax you owe to zero, you can have 40% of any remaining amount of the credit (up to $1,000) refunded to you. So, if you are eligible to claim the full credit and do not owe any taxes, then the maximum refundable portion would be $1,000.

Thus, the correct answer to the question, "What is the refundable portion of the AOTC that the Cumberlands qualify to claim?" is (a) $1,000.