Shellie, a single individual, received her Bachelor\'s degree in 2014, and took

Question

Shellie, a single individual, received her Bachelor's degree in 2014, and took a job with a salary of $45,000 per year. In 2015, she began paying interest on qualified education loans. She was able to pay $1,500 in 2015. Which of the following statements is not correct? a The full $1,500 is deductible in arriving at adjusted gross income (AGI). b If her income had been $80,000, the deductible amount would have been phased out. c If her payment had been $3,000, only $2,500 would have been deductible in arriving at AGI and the $500 excess would have been treated as nondeductible consumer interest. d Taxpayers are not allowed a deduction for education loan interest in 2015.

Explanation / Answer

With repect to deduction for interest on qualified educational loan following are the rules & guidelines :

           If your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500.

This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2014. The student loan interest deduction is claimed as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040).

You cannot claim a student loan interest deduction if your MAGI is $80,000 or more ($160,000 or more if you file a joint return). Modified adjusted gross income (MAGI).You can claim the full $2,500 deduction if your modified adjusted gross income is $65,000 or less. The deduction is gradually reduced when your modified adjusted gross income is between $65,000 and $80,000. You can’t claim a deduction if your modified adjusted gross income is $80,000 or more.

So with respect to the above , we can conclude that (d) is incorrect , i.e, taxpayers are not allowed a deduction for education loan interest in 2015 is INCORRECT.

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