How to get the student loan interest deduction

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What is the student loan interest deduction?

The interest deduction on student loans is a tax benefit that can offset the cost of borrowing to pay for your education. If you paid interest during the year on a qualifying student loan, you may be eligible for the student loan interest deduction. Claimed as an adjustment to your income, you don’t need to itemize the deductions to take it.

If you qualify, you can deduct up to $ 2,500 in student loan interest per year. When your modified adjusted gross income (MAGI) reaches the annual limit of your tax declaration status, the deduction will be gradually reduced and possibly eliminated, according to the IRS.

How to Qualify for the Student Loan Interest Deduction

You must meet all of the following conditions to claim the interest deduction on qualifying student loans.

  1. You are legally required to pay interest on a qualifying student loan.
  2. You paid interest on a qualifying student loan in the year you apply the deduction.
  3. If you are married, you file jointly.
  4. Your MAGI – all the income you’ve earned in a year minus some deductions – is below the annual limit set by the IRS for your tax reporting status.
  5. You or your spouse, if you are filing a joint return, cannot be claimed as a dependent on another person’s income tax return.

Education expenses eligible for the student loan interest deduction include:

  • Tuition and fees.
  • Room and board.
  • Any course expenses, including books, supplies, fees and required equipment.
  • Other necessary expenses, such as transportation.

Income limits: phase-out of the deduction for interest on student loans

Your modified adjusted gross income determines your eligibility for an interest deduction on student loans. Here’s when the phase-out begins and ends depending on the status of your deposit:

Filing status The phase-out begins with MAGI of… The elimination ends with MAGI of …
Alone $ 70,000 $ 85,000
Head of household $ 70,000 $ 85,000
Eligible widower (s) $ 70,000 $ 85,000
Married spouse filing $ 140,000 $ 170,000
Separate marriage deposit Ineligible Ineligible

Can I deduct the interest on a student loan?

To deduct the interest on the student loan, the qualifying student loan you have taken out must be used to pay the education costs for you, your spouse or your dependent while you are attending an eligible institution. Additionally, the lender must qualify to participate in the program as determined by the US Department of Education.

Students at educational institutions other than public universities and colleges may be eligible for the federal student loans program. These institutions include technical and vocational schools, for-profit and non-profit colleges, and other post-secondary institutions. The student loan must be taken out by you and not by an employer or parent benefit program, and as a borrower you must repay the loan within a realistic timeframe. However, the IRS is flexible if you make an effort to repay it and communicate your financial situation.

The Student Loan Interest Statement, IRS Form 1098-E, is the form used to report student loan interest payments to you and to the IRS. Your loan officer (s) will provide at least one Form 1098-E if you paid $ 600 or more in interest during the tax year.

Can I deduct student loan payments?

You cannot deduct the principal payments you make on your student loans, but you can deduct the interest portion of the student loan payments, up to a maximum of $ 2,500.

In a 2020 College Council Report, the average sticker price in the state for attending a four-year public college in 2020-2021 averaged $ 10,560. Factoring in other costs such as room and board, course materials, and fees increased the average to $ 26,820. For international students in public colleges, tuition fees averaged $ 27,020, and private college students paid an average of $ 37,650. Together with other charges, these averages were raised to $ 43,280 and $ 54,880, respectively.

With tuition fees rising every year, don’t leave money on the table. If you qualify, take advantage of the student loan interest deduction.


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