Question

This year Riley files single and reports modified AGI of $71,000. Riley paid $1,200 of interest on a qualified education loan. What amounts can Riley deduct for qualifying education interest?

A. The deduction for qualifying education interest is $1,200.

B. The deduction for qualifying education interest is $1,000.

C. The deduction for qualifying education interest is $720.

D. The deduction for qualifying education interest is $200.

E. None of these.

Answer 1

Option (e), Riley can deduct $2,475 for qualifying education interest based on their modified AGI of $71,000.

Step-by-step explanation:

To determine the deduction for qualifying education interest, we need to look at the IRS guidelines. For single filers like Riley, the maximum deduction for qualifying education interest is $2,500. However, the eligibility for the deduction is based on the modified adjusted gross income (MAGI).

In Riley's case, with a modified AGI of $71,000, the deduction begins to phase out once the MAGI exceeds $70,000. The phase-out is gradual, with the deduction reduced by 1% for every $2,000 that the MAGI exceeds the threshold.

Since Riley's MAGI is $1,000 above the threshold, the deduction is reduced by 1% of the maximum $2,500 deduction, which amounts to $25. Therefore, Riley can deduct $2,500 - $25 = $2,475 for qualifying education interest.