Final answer:
Marsha and Jeff can deduct $4,000 for AGI from their son Josh's tuition and fees at State University, as per the 2014 tax rules. This is because the tuition and fees deduction for that year permitted a maximum of $4,000 deduction for qualified education expenses within certain income limits.
Step-by-step explanation:
Assuming the rules from 2014 apply to your situation, and considering your modified adjusted gross income (AGI) is $135,000, Marsha and Jeff may be eligible to deduct a portion of the expenses they paid for their son Josh's tuition and fees. It's important to note that the IRS often adjusts these figures, so it's crucial to verify current year rules for the precise amount deductible.
As of the rules applicable for 2014, Marsha and Jeff can deduct $4,000 for AGI, which falls under the answer option B. This is considering the tuition and fees deduction that allowed for a maximum of $4,000 deduction for qualified education expenses for taxpayers with a modified AGI within certain limits. The cost of books is typically not included in the tuition and fees deduction. So, in your case, only the $5,000 paid towards tuition and fees is considered for the deduction, and not the additional $1,000 for books.
Keep in mind that tax laws can be complex and change from year to year, and it is advisable to consult the IRS documentation or a tax professional for the most accurate and current information.