Question

Meri paid $3,110 in interest on a private loan she took out to pay qualified education expenses when she was a full-time student. In early 2023, she received a Form 1098-E showing interest she paid during the year. She is filing a joint return with her husband, Anton, and their modified adjusted gross income (MAGI) is $150,000. What is the maximum amount of student loan interest that Meri and Anton can deduct on their return?

o $0
o $ 1,667
o $ 2,500
o $ 3,110

Answer 1

Meri and Anton can deduct a maximum of $2,500 for student loan interest on their joint return, as they are within the income phase-out range set by the IRS.

Step-by-step explanation:

The correct option : c

The maximum amount of student loan interest that Meri and Anton can deduct on their return is $2,500. This deduction is limited if your modified adjusted gross income (MAGI) is between $140,000 and $170,000 for married filing jointly. Since Meri and Anton have a MAGI of $150,000, they are within this phase-out range, which reduces the $2,500 maximum deduction.

The deduction is gradually reduced and eventually eliminated by a phase-out rule as your MAGI increases, but they are not above the threshold where the benefit disappears completely. Therefore, even though Meri paid more in interest, the deduction cannot exceed the $2,500 cap established by the Internal Revenue Service (IRS) for those within the applicable MAGI range.