This fall Millie finally repaid her student loan. She originally borrowed the money to pay tuition several years ago, when she attended 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 $75,000 of income and no other items of income or expense, how much of the interest can she deduct?

Question

Quizplus · Accepted Answer

Millie can deduct up to $2,500 of student loan interest paid during the year, but the deduction is phased out for taxpayers with income over $70,000 ($140,000 for married taxpayers filing jointly). Since Millie's income is $75,000, her deduction is subject to a phaseout. The phaseout calculation is as follows:
Maximum deduction = $2,500
Excess income = $75,000 - $70,000 = $5,000
Ratio of excess income to phaseout range = $5,000 ÷ $15,000 = 1/3
Phaseout percentage = 1/3 × 100% = 33.33%
Amount of deduction = $2,500 - ($2,400 × 33.33%) = $1,600 for AGI.

This Fall Millie Finally Repaid Her Student Loan