Student loan interest deduction: Who qualifies and how do I claim a $2,500 deduction?
SStudent loans have become a huge burden for many parents and young adults. With tuition through the roof and little hope of covering tuition without taking out some type of loan, being stuck with those student loan payments after graduation is almost a reality.
While you can’t escape these payments, the CARE Act, the US bailout, and presidential executive orders to help students with federal student loans offer some COVID relief.
Aside from the temporary relief, are there any tax breaks that will ease the burden of student loans? We have good news for you.
Can I claim a $2,500 deduction?
Taxpayers making payments on a qualified student loan may be able to get some relief if the loan they took out was only used to pay for higher education expenses.
In many cases, the interest portion of your student loan payments during the tax year is tax deductible. Your tax deduction is limited to interest up to $2,500 or the amount of interest you actually pay, depending is less. As with most tax credits and deductions, limits are set.
According to IRS websiteyou can claim the deduction if all of the following conditions apply:
- You paid interest on an eligible student loan in the 2021 tax year.
- You are legally required to pay interest on a qualified student loan.
- Your filing status is not married filing separately.
- Your MAGI is below a specified amount that is set annually.
- Neither you nor your spouse, if filing jointly, can be claimed as dependents on someone else’s return.
A qualified student loan is a loan that you took out solely to pay qualified higher education expenses that were:
- For you, your spouse or a person who was dependent on you when you took out the loan.
- For education provided during a school term to a qualifying student.
- Paid or incurred within a reasonable time before or after taking out the loan.
You do not need to itemize deductions to claim them. This makes sense considering that many recent college grads don’t itemize taxes, but instead claim the standard deduction.
If you paid more than $600 in interest to a single lender during the year, you should receive a Form 1098-E showing the amount of interest you paid for that period. If you made student loan payments but did not receive a Form 1098-E, you are still eligible to claim the interest deduction, but you may need to call the lender or retrieve your records online .
You can get all the forms you need directly from the official IRS website.Click here to check it out.