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9 January, 07:16

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 interest on higher-education loans under the following circumstances: (Leave no answer blank. Enter zero if applicable.) Lionel's AGI before deducting interest on higher education loans is $74,000.

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  1. 9 January, 07:55
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    The correct answer is $1,056.

    Explanation:

    According to the scenario, the computation of the given data are as follows:

    If AGI is less than $70,000 than maximum deduction = $2,500

    Then the second Phase is start at $70,000 and ends at $85,000.

    Modified AGI = $74,000

    Interest on loan = $1,440

    So, we can calculate the amounts Lionel can deduct for interest on higher-education loans by using following formula:

    Deduction for Interest = Total interest paid - Amount disallowed

    Where, Amount disallowed = ($74,000 - $70,000) : ($85,000 - $70,000) * $1,440

    = ($4,000) : ($15,000) * $1,440

    = $384

    So, by putting the value, we get

    Deduction for Interest = $1,440 - $384

    = $1,056
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