CPA Exam — REG (Regulation)Federal Taxation of IndividualsMedium
A client, single, age 40, has an AGI of $70,000. They paid $3,000 in student loan interest during the year. What is the maximum student loan interest deduction they can claim?
- A$1,500
- B$2,500
- C$0
- D$3,000
Show answer & explanationAnswer & explanation
Correct answer: B. $2,500
The maximum student loan interest deduction is $2,500 per year. Since the client's AGI of $70,000 is below the phase-out range for single filers ($75,000 - $90,000 for 2023), they can claim the full $2,500 deduction, even though they paid $3,000.
Why the other options are wrong
- A. This is an incorrect calculation; the maximum is $2,500.
- C. This would be incorrect as the client is eligible for a deduction.
- D. This is the total amount paid, but the deduction is capped at $2,500.
Student Loan Interest Deduction
Taxpayers can deduct the amount of interest paid during the year on a qualified student loan, up to a maximum of $2,500. This is an above-the-line deduction.
- Maximum deduction is $2,500 per year.
- Deduction is phased out based on Modified AGI.
- Loan must be for qualified education expenses.
- Taxpayer cannot be claimed as a dependent on someone else's return.
Memory trick: Student Loan Interest: $2,500 is the cap, AGI phase-out, above the line, no dependency trap.