Question

​18. Marcia, who is​ single, finished graduate school this year and began repaying her student loan. The proceeds of the loan were used to pay her qualified higher education expenses. She has not received any type of educational assistance or scholarships. The amount of interest paid during the year amounted to​ $3,000. What is the amount and classification of her student loan interest deduction if her AGI is​ $73,000?

A. $3,000 for AGI

B. $2,500 for AGI

C.​ $2,000 for AGI

D. ​$500 for AGI

Answer 1

Hey buddy !!

The correct option is B.

Reason -

The student loan interest deduction is a federal income-tax deduction that allows you to subtract up to $2,500 in the interest you paid on qualified student loans from your taxable income. It is one of several tax breaks available to students and their parents to help pay for higher education.

Key notes

• The student loan interest deduction lets you deduct up to $2,500 of the interest you paid on a loan for higher education.
• To be eligible, your income must be under certain limits.
• You don't have to itemize deductions when you file your income taxes in order to claim this deduction

you can currently deduct up to $2,500 of the interest you paid on an eligible student loan. If you paid less than that, your deduction is capped at whatever amount you did pay.

Further the limits as per the income levels are relevant when you calculate Modified AGI. In that case up to Income of $65000 full interest is allowed. If it exceeds $65000 and is less than $80000 then pro rata interest is allowed. If it is more than $80000 then no interest is allowed.

In the given question there is no mention of Modified AGI, thus option B is correct.

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