Lionel is an unmarried law student at State University Law School, a qualified educational institution. This year Lionel borrowed $24,000 from County Bank and paid interest of $1,440. Lionel used the loan proceeds to pay his law school tuition. Calculate the amounts Lionel can deduct for higher education expenses and interest on higher education loans under the following circumstances. A) Lionel's AGI before deducting interest on higher education loans is $50,000.
B) Lionel's AGI before deducting interest on higher education loans is $74,000.
C) Lionel's AGI before deducting interest on higher education loans is $90,000.

A) $ 1,440 deduction

B) $1,056 deduction

C) not allowed

Explanation:

IMPORTANT:

As 2020 student loan became interest-free according to Trump administration and extended by Joe Biden up to September 2021

We are going to work the numbers with 2019 values. Which is the closest year one could claim this deduction.

Below AGI of 70,000 we can have a full deduction.

so A) will be a $ 1,440 deduction

Between 70,000 and 85,000 we have a partial deduction.

so we do:

This is the fraction we are disallowed to deduct.

We take our interest expense and multiply by 1 less this amount:

And that is the deduction we can make.

C) as the tax benefit phase-out above $85,000 AGI if Lionel's AGI is $90,000 there is no possible tax deduction

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