Shellie, a single individual, received her Bachelor's degree in 2018, and took a job with a salary of $45,000 per year. In 2019, she paid $1,500 of interest on qualified education loans. Which of the following statements is correct?
A)The full $1,500 is deductible in arriving at adjusted gross income (AGI).
B)If her payment had been $3,000, only $2,000 would have been deductible in arriving at AGI and the $1,000 excess would have been treated as nondeductible consumer interest.
C)If her income had been $65,000, the deductible amount would have been phased out.
D)Taxpayers are not allowed a deduction for education loan interest in 2019.

Question

Quizplus · Accepted Answer

Option A is correct because the full $1,500 interest paid on qualified education loans is deductible in arriving at adjusted gross income (AGI) in 2019. This deduction is available even if the taxpayer does not itemize deductions.

Option B is not correct because the maximum amount of interest that can be deducted in arriving at AGI is $2,500, regardless of the amount of interest paid on qualified education loans. If Shellie's payment had been $3,000, she could still only deduct a maximum of $2,500 in arriving at AGI.

Option C is not correct because the phase-out for the deduction of education loan interest begins at a modified adjusted gross income (MAGI) of $70,000 ($140,000 for married filing jointly) in 2019. Shellie's MAGI of $45,000 is below this threshold.

Option D is not correct because taxpayers are allowed to deduct up to $2,500 of interest paid on qualified education loans in arriving at AGI in 2019.

Shellie, a Single Individual, Received Her Bachelor's Degree in 2018