Question

Discussion Question 9-8 (LO. 5, 10)

Jamie has an undergraduate degree in finance and is employed full-time by a bank. She is taking courses at a local university leading to an MBA degree.

a. Based on the reasons for the taking courses listed below, identify for Jamie whether the associated costs are "Deductible" or "Nondeductible".

It is to maintain or improve existing skills required in her present job. It is to meet the minimum educational standards for qualification in her existing job. It is to qualify her for a new trade or business. It is to meet the express requirements of her employer or the requirements imposed by law to retain her employment status.

b. Complete the statement below outlining the limitations imposed on the deduction.

Assume that Jamie is a single filer with an MAGI of $64,000.

Click here to view § 222 Deduction Amounts.

deductible for AGI and deducted from AGI as an itemized deduction which subject to the 2%-of-AGI limitation.

Answer 1

a) The cost of obtaining an MBA degree for someone who is employed in a business position normally is a deductible education expense. But if the reason for taking course is to qualify her for a new trade or business then the expense will not be deductible or disallowed.

Reasons	Deductible or Nondeductible
It is to maintain or improve existing skills required in her present job.	Deductible
It is to meet the minimum educational standards for qualification in her existing job.	Deductible
It is to qualify her for a new trade or business.	Nondeductible
It is to meet the express requirements of her employer or the requirements imposed by law to retain her employment status.	Deductible

b) $4,000 will be allowed as deduction for qualified tuition under § 222. Except for this amount of tuition portion, Jamie must itemize to claim the deduction and it will also be subject to the 2% of AGI limitation.