Question

Shellie, a single individual, received her Bachelor's degree in 2017, and took a job with a salary of $45,000 per year. In 2018, she began paying interest on qualified education loans. She was able to pay $1,500 in 2018. Which of the following statements is correct?

a The full $1,500 is deductible in arriving at adjusted gross income (AGI).
b If her income had been $80,000, the deductible amount would have been phased out.
c If her payment had been $3,000, only $2,500 would have been deductible in arriving at AGI and the $500 excess would have been treated as nondeductible consumer interest.
d Taxpayers are not allowed a deduction for education loan interest in 2015.

Answer 1

The correct statement about Shellie's student loan interest deduction is that only up to $2,500 of student loan interest can be deducted from AGI. Income level and interest paid can affect the deductibility, and the statements regarding complete deduction and phase-out are accurate.

Step-by-step explanation:

The student's question pertains to the deductibility of interest paid on qualified education loans when calculating adjusted gross income (AGI) for tax purposes. Specifically, Shellie paid $1,500 in interest in 2018. The correct statement about the deduction of this interest is that if Shellie's payment had been $3,000, only $2,500 would have been deductible because the IRS allows a maximum deduction of $2,500 in student loan interest annually, and any amount paid above this threshold is considered nondeductible consumer interest. This means that statement c is the correct one. Additionally, statement b is also factual because the ability to deduct student loan interest begins to phase out for taxpayers with a modified adjusted gross income (MAGI) above a certain threshold, and for tax years after 2017, this phase-out starts at $65,000 for single filers, with a complete phase-out at $80,000. Lastly, student loan interest has been deductible for many years, including 2015, so statement d is incorrect.