This fall Marsha and Jeff paid $5,000 for their son Josh's tuition and fees at State University (a qualified education institution). They also paid $1,000 for Josh's books. How much of these two payments can Marsha and Jeff deduct this year, assuming Josh is their dependent and their modified AGI is $135,000? (Assume the 2016 rules apply for purposes of the qualified education expense deduction.)
A) Marsha and Jeff can deduct $2,000 for AGI.
B) Marsha and Jeff can deduct $4,000 for AGI.
C) Marsha and Jeff can deduct $2,500 for AGI.
D) Marsha and Jeff can deduct $5,000 for AGI.
E) None - the tuition is not deductible.

Question

Quizplus · Accepted Answer

The qualified education expense deduction is phased out for taxpayers with modified AGIs above certain levels. For 2016, the phase-out begins at $130,000 for single filers and $160,000 for married couples filing jointly. Marsha and Jeff's modified AGI of $135,000 is within the phase-out range, so their deduction is reduced. The amount of the reduction is $2,000, which is calculated as follows:$5,000 x ($135,000 - $130,000) / ($160,000 - $130,000) = $2,000Therefore, Marsha and Jeff can deduct $2,000 for AGI.

This Fall Marsha and Jeff Paid $5,000 for Their Son