Question

In August 2017, Marisela took out a $10,000 qualified student loan to pay the tuition at State College. In 2019, she refinanced the student loan for an additional $5,000 that she used to buy a car to drive to and from campus. Under the terms of the refinanced loan, Marisela will be charged an additional $150 a year in interest. When completing her income tax return, Marisela can deduct what amount of the additional interest she is charged for her refinanced student loan?

A. $0 B. $75 C. $100 D. $150

Answer 1

Solution :

The answer will A. i.e. $0.

The loan must be taken out during an academic period for which the student is enrolled at least half-time in a program leading to a degree, certificate, or other recognized credential. It has to be used for qualified higher education expenses, such as tuition, fees, textbooks, supplies, and equipment needed for coursework. Room and board, student health fees, insurance, and transportation do not count as qualified educational expenses for a student loan interest deduction. Additionally, the loan must be used within a “reasonable period of time” after it is taken out. Loan proceeds must be disbursed within 90 days before the academic period starts or 90 days after it ends.

Hence as the loan is used to buy a car to drive to and from campus, therefore no additional interest amount can be deducted by Marisela from her income tax return.