This year, Jong paid $3,000 of interest on a qualified education loan. Jong files married joint and reports modified AGI of $142,000. What is Jong's deduction for interest expense on an educational loan?
A) $2,500
B) $3,000
C) $1,500
D) $1,000
E) None of these.

Question

Quizplus · Accepted Answer

The deduction for interest expense on an educational loan is phased out for taxpayers with modified AGI between $140,000 and $170,000 for married filing jointly. Jong's modified AGI falls within this range, so we need to calculate the phase-out. We first calculate the phase-out range, which is $2,500 ($170,000 - $140,000). We then calculate the proportion of the phase-out that applies to Jong, which is ($142,000 - $140,000) / $2,500 = 0.8. We multiply this proportion by the maximum deduction of $2,500 to get the reduced deduction, which is $2,000. Since Jong paid $3,000 of interest, he can deduct the full $2,000, resulting in a deduction of $1,500. Thus, the correct answer is C.

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