Question

This fall, Josh paid $5,000 for his tuition and fees at State University (a qualified education institution). Assume that Josh is Marsha and Jeff's son and that Marsha and Jeff claim Josh as a dependent. Marsha and Jeff's modified AGI is $100,000. How much of Josh's $5,000 tuition and fees payments can Marsha and Jeff deduct this year (assume the 2014 rules apply for purposes of the qualified education expense deduction)?

A. Marsha and Jeff can deduct $5,000 for AGI.

B. Marsha and Jeff can deduct $4,000 for AGI.

C. Marsha and Jeff can deduct $2,500 for AGI.

D. Marsha and Jeff can deduct $2,000 for AGI.

E. None - the tuition is not deductible by Marsha and Jeff.

Answer 1

Marsha and Jeff can deduct $4,000 for AGI according to the tax deduction rules for qualified education expenses in place for the year 2014, as their modified AGI allows them to take this deduction. The correct option is B.

Step-by-step explanation:

The question is asking to determine how much of Josh's tuition and fees Marsha and Jeff can deduct from their Adjusted Gross Income (AGI) for their taxes using the rules that were in place for the year 2014.

Given that Marsha and Jeff's modified AGI is $100,000, they would be eligible to take a tuition and fees deduction for their son Josh's education expenses under the tax rules of 2014, where the maximum deduction was indeed $4,000 for those whose modified AGI is $130,000 or less for joint returns (or $65,000 or less for single and other filers).

However, the deduction amount gets phased out above these income levels.

Therefore, the correct answer to the question is:B. Marsha and Jeff can deduct $4,000 for AGI. This would be claimed as an adjustment to income which means they can deduct this amount even if they do not itemize deductions on their tax return. The correct option is B.