This year Riley files single and reports AGI of $71,000. Riley paid $1,200 of interest on a qualified education loan. What amounts can Riley deduct for qualifying education interest?
A) The deduction for qualifying education interest is $1,200.
B) The deduction for qualifying education interest is $1,000.
C) The deduction for qualifying education interest is $720.
D) The deduction for qualifying education interest is $200.
E) None of the above.

Question

Quizplus · Accepted Answer

Riley may deduct the amount paid ($1,200) up to $2,500, reduced by the phase-out amount. The phase-out amount is the amount paid up to $2,500 ($1,200 for Riley) multiplied by 40% [71,000 - 65,000]/15,000 = 40%. Hence, Riley may deduct $720 [$1,200 - [$1,200 × 40%] = $720].

This Year Riley Files Single and Reports AGI of $71,000