This year, Jong paid $3,000 of interest on a qualified education loan. Jong files married filing joint and reports modified AGI of $147,000. What is Jong's deduction for interest expense on an educational loan?
A) $2,500.
B) $1,500.
C) $1,000.
D) $3,000.
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

Based on the 2020 tax year, the deduction for interest expense on a qualified education loan begins to phase out for taxpayers with modified AGI over $140,000 for married filing jointly. The phase-out range is between $140,000 and $170,000. Since Jong's modified AGI is $147,000 which is in the phase-out range, the deduction is reduced by a percentage. To calculate the reduction, we use the following formula: 
Reduction Percentage = (Modified AGI - $140,000) / $30,000 
Reduction Percentage = ($147,000 - $140,000) / $30,000 = 0.2333 or 23.33% 
Since Jong paid $3,000 of interest, his deduction for interest expense on an educational loan is reduced by 23.33%, which is $700. 
Therefore, Jong's deduction for interest expense on an educational loan is $3,000 - $700 = $2,300. However, since the maximum deduction for 2020 is $2,500, the answer is B) $1,500.

This Year, Jong Paid $3,000 of Interest on a Qualified