Question

In 2012 through 2015, Korey, who is single, borrowed a total of $25,000 for higher education expenses on qualified education loans. In 2016, while still living at home and being claimed by his parents as a dependent, he began making payments on the loan. The first year's interest on the loan was reported as $550 and his AGI for year was less than $65,000. The amount that Korey can claim on his tax return is:

a. $0.
b. $225.
c. $340.
d. $550.

Answer 1

Korey cannot claim the student loan interest deduction on his tax return because he is claimed as a dependent by his parents, and the deduction, if eligible, can only be claimed by the person who claims the student as a dependent.

Step-by-step explanation:

For Korey, the tax deduction for student loan interest can be claimed in the year that the interest is actually paid. However, as Korey is being claimed as a dependent on his parents' tax return, he is not eligible to claim the deduction himself. The person who claims the student as a dependent, in this case, Korey's parents, would normally be the one eligible to claim the student loan interest deduction, provided they meet all other qualifying criteria. This is regardless of whether Korey's adjusted gross income (AGI) was less than $65,000. Therefore, the amount Korey can claim on his own tax return for the student loan interest paid is $0.

Remember, the specifics of tax deductions and credits can be quite complex and sometimes the person claiming the dependent may be able to claim the benefit if eligible. However, in this specific question's scenario, Korey cannot claim the deduction on his tax return.