This fall Millie finally repaid her student loan. She originally borrowed the money to pay tuition several years ago when she attended at State University (a qualified educational institution). This year Millie paid a total of $2,400 of interest on the loan. If Millie files single and reports $70,000 of income and no other items of income or expense howmuch of the interest can she deduct?

Question

Quizplus · Accepted Answer

The maximum deduction for student loan interest is $2,500 per year, but it is phased out for taxpayers with modified adjusted gross income (MAGI) between $65,000 and $80,000 in 2020. Since Millie's MAGI is $70,000, which falls within the phase-out range, she can only deduct a portion of the $2,400 interest she paid. The formula to calculate the deduction is:

Maximum deduction - (MAGI - phase-out start)/$15,000 x maximum deduction

$2,500 - ($70,000 - $65,000)/$15,000 x $2,500 = $1,600

Therefore, Millie can deduct $1,600 of the interest for AGI. She cannot deduct the remaining $800 because it exceeds the maximum deduction and she is not allowed to itemize deductions.

This Fall Millie Finally Repaid Her Student Loan