HRB FINAL EXAM ACTUAL QUESTIONS AND ANSWERS
GRADED A+
✔✔Tax-free funds specifically designated to pay expenses other than qualified
expenses (such as a scholarship specifically designated to pay room and board) do not
reduce - ✔✔qualified educational expenses
✔✔The AOTC may be claimed for qualifying expenses paid with borrowed funds, such
as student loans. It is true that the student does not pay tax when they receive the
borrowed funds, but the loans do have to be repaid in the future. Because of the
repayment provision, qualified expenses paid with borrowed funds may be used for the -
✔✔AOTC
✔✔Lisa Dougherty is claimed as a dependent by her mother, Florence. Lisa paid most
of her own college expenses. Is Lisa eligible to claim the AOTC? - ✔✔Ineligible
✔✔The AOTC is available for up to $2,500 per eligible student on the tax return. Only
$4000 of qualified education expenses can be used to calculate the AOTC because
$4000 is the maximum amount allowed. The amount of the AOTC is the sum of:
100% of the first $2,000 of qualified education expenses paid for the eligible student.
25% of the next $2,000 of qualified education expenses paid for the eligible student.
Calculating AOTC - ✔✔AOTC maximum credit
✔✔The AOTC is phased out for taxpayers with MAGI between $80,000 and $90,000
($160,000 and $180,000 MFJ). The AOTC is not available to taxpayers with MAGI
above - ✔✔$90,000 ($180,000 MFJ).
✔✔A taxpayer does not qualify for the refundable AOTC if all of the following apply:
The taxpayer is either:
Under age 18 at the end of the tax year OR
Age 18 at the end of the tax year and the taxpayer's earned income is less than one-half
of their support OR
Over age 18 but under age 24 at the end of the tax year and a full-time student whose
earned income is less than one-half of their support.
AND At least one of the taxpayer's parents is still alive at the end of the tax year
(whether or not they stay in contact with the parent).
The taxpayer is filing a return as single, head of household, qualifying widow(er), or
married filing separately for the tax year. - ✔✔
✔✔Generally, the taxpayer can claim the lifetime learning credit for 2018 if both the
following are true:
The taxpayer paid qualified education expenses of higher education for an eligible
student.
, The eligible student is the taxpayer, spouse, or dependent for whom the taxpayer claims
an exemption on their tax return. - ✔✔Lifetime learning qualification
✔✔The amount of the lifetime learning credit is 20% of the total qualified expenses for
all eligible students on the tax return. The maximum amount of expenses allowed per
tax return is $10,000; therefore, the maximum annual credit is $2,000 per return,
regardless of the number of eligible students. This is significantly different than the
AOTC maximum of $2,500 per student. However, the lifetime learning credit may be
claimed for an unlimited number of tax years. - ✔✔Amount of Lifetime learning credit
✔✔The lifetime learning credit may not be claimed for 2018 if any of the following apply:
The taxpayer is filing MFS.
The taxpayer is claimed as a dependent on any other tax return.
The taxpayer's MAGI is $67,000 or more ($134,000 MFJ).
The taxpayer, or spouse if MFJ, was a nonresident alien for any part of 2018, and the
nonresident alien did not elect to be treated as a resident alien for tax purposes.
The taxpayer claims the AOTC for the same student in 2018. - ✔✔Ineligible for the
Lifetime Learning credit
✔✔For single, HH, or QW, the lifetime learning credit MAGI phaseout range is $57,000
to $67,000. For MFJ, the lifetime learning credit MAGI phaseout range is $114,000 to
$134,000. The lifetime learning credit phases out within those ranges and is eliminated
when exceeding them. - ✔✔Lifetime learning MAJI phaseout
✔✔The student is enrolled in a course that is part of a degree program for
undergraduate- or graduate-level courses.
The student took courses to acquire or improve job skills. - ✔✔Lifetime learning credit
✔✔For purposes of the lifetime learning credit, qualifying expenses include the cost of
tuition, books, supplies, equipment, and student activity fees, if they are required to be
paid to the institution as a condition of the student's enrollment. - ✔✔Qualified expenses
for Lifetime Learning
✔✔Income also plays an important role in determining the most advantageous
education provision. The table below shows the MAGI levels at which the AOTC and the
lifetime learning credit phase out or reduce for 2018 returns. - ✔✔Comparing phaseout
limits for AOTC and Lifetime learning
✔✔Here is a helpful rule to think about the "tax benefit" hierarchy of education benefits:
Nontaxable benefits (for example, Pell Grants).
Refundable credits.
Nonrefundable credits. Tax benefit hierarchy of education benefits - ✔✔Tax benefit
hierarchy of education benefits
GRADED A+
✔✔Tax-free funds specifically designated to pay expenses other than qualified
expenses (such as a scholarship specifically designated to pay room and board) do not
reduce - ✔✔qualified educational expenses
✔✔The AOTC may be claimed for qualifying expenses paid with borrowed funds, such
as student loans. It is true that the student does not pay tax when they receive the
borrowed funds, but the loans do have to be repaid in the future. Because of the
repayment provision, qualified expenses paid with borrowed funds may be used for the -
✔✔AOTC
✔✔Lisa Dougherty is claimed as a dependent by her mother, Florence. Lisa paid most
of her own college expenses. Is Lisa eligible to claim the AOTC? - ✔✔Ineligible
✔✔The AOTC is available for up to $2,500 per eligible student on the tax return. Only
$4000 of qualified education expenses can be used to calculate the AOTC because
$4000 is the maximum amount allowed. The amount of the AOTC is the sum of:
100% of the first $2,000 of qualified education expenses paid for the eligible student.
25% of the next $2,000 of qualified education expenses paid for the eligible student.
Calculating AOTC - ✔✔AOTC maximum credit
✔✔The AOTC is phased out for taxpayers with MAGI between $80,000 and $90,000
($160,000 and $180,000 MFJ). The AOTC is not available to taxpayers with MAGI
above - ✔✔$90,000 ($180,000 MFJ).
✔✔A taxpayer does not qualify for the refundable AOTC if all of the following apply:
The taxpayer is either:
Under age 18 at the end of the tax year OR
Age 18 at the end of the tax year and the taxpayer's earned income is less than one-half
of their support OR
Over age 18 but under age 24 at the end of the tax year and a full-time student whose
earned income is less than one-half of their support.
AND At least one of the taxpayer's parents is still alive at the end of the tax year
(whether or not they stay in contact with the parent).
The taxpayer is filing a return as single, head of household, qualifying widow(er), or
married filing separately for the tax year. - ✔✔
✔✔Generally, the taxpayer can claim the lifetime learning credit for 2018 if both the
following are true:
The taxpayer paid qualified education expenses of higher education for an eligible
student.
, The eligible student is the taxpayer, spouse, or dependent for whom the taxpayer claims
an exemption on their tax return. - ✔✔Lifetime learning qualification
✔✔The amount of the lifetime learning credit is 20% of the total qualified expenses for
all eligible students on the tax return. The maximum amount of expenses allowed per
tax return is $10,000; therefore, the maximum annual credit is $2,000 per return,
regardless of the number of eligible students. This is significantly different than the
AOTC maximum of $2,500 per student. However, the lifetime learning credit may be
claimed for an unlimited number of tax years. - ✔✔Amount of Lifetime learning credit
✔✔The lifetime learning credit may not be claimed for 2018 if any of the following apply:
The taxpayer is filing MFS.
The taxpayer is claimed as a dependent on any other tax return.
The taxpayer's MAGI is $67,000 or more ($134,000 MFJ).
The taxpayer, or spouse if MFJ, was a nonresident alien for any part of 2018, and the
nonresident alien did not elect to be treated as a resident alien for tax purposes.
The taxpayer claims the AOTC for the same student in 2018. - ✔✔Ineligible for the
Lifetime Learning credit
✔✔For single, HH, or QW, the lifetime learning credit MAGI phaseout range is $57,000
to $67,000. For MFJ, the lifetime learning credit MAGI phaseout range is $114,000 to
$134,000. The lifetime learning credit phases out within those ranges and is eliminated
when exceeding them. - ✔✔Lifetime learning MAJI phaseout
✔✔The student is enrolled in a course that is part of a degree program for
undergraduate- or graduate-level courses.
The student took courses to acquire or improve job skills. - ✔✔Lifetime learning credit
✔✔For purposes of the lifetime learning credit, qualifying expenses include the cost of
tuition, books, supplies, equipment, and student activity fees, if they are required to be
paid to the institution as a condition of the student's enrollment. - ✔✔Qualified expenses
for Lifetime Learning
✔✔Income also plays an important role in determining the most advantageous
education provision. The table below shows the MAGI levels at which the AOTC and the
lifetime learning credit phase out or reduce for 2018 returns. - ✔✔Comparing phaseout
limits for AOTC and Lifetime learning
✔✔Here is a helpful rule to think about the "tax benefit" hierarchy of education benefits:
Nontaxable benefits (for example, Pell Grants).
Refundable credits.
Nonrefundable credits. Tax benefit hierarchy of education benefits - ✔✔Tax benefit
hierarchy of education benefits
