DJ and Nicolette paid $1,600 in qualifying expenses for their daughter Nicole to attend the University of Nevada.Nicole is a sophomore.DJ and Nicolette's AGI is $175,000.What is their maximum allowable American opportunity tax credit after the credit phase-out based on AGI is taken into account?

A) $0.
B) $400.
C) $600.
D) $1,600.

The American Opportunity Tax Credit offers a maximum credit of $2,500 per eligible student, which is calculated as 100% of the first $2,000 of qualifying expenses, plus 25% of the next $2,000. However, for married couples filing jointly, the credit begins to phase out at an AGI of $160,000 and is completely phased out at $180,000. With an AGI of $175,000, DJ and Nicolette are within the phase-out range, reducing their maximum credit. Given the phase-out, their maximum allowable credit is reduced, but not to $0. The exact phase-out calculation isn't provided here, but the correct answer based on the options given and understanding of the tax credit's phase-out rules is $400. This suggests a significant reduction due to their AGI but still allows for some credit.