If you took out student loans to pay for your education, you may be eligible for the student loan interest deduction. It allows you to subtract certain interest paid on your school loans from your income tax return.
The interest deduction on student loans is an over-limit deduction, which means it will reduce your taxable income. You can claim the tax deduction without itemizing, and it will reduce your adjusted gross income, so you will pay less state and local taxes.
As you review your tax return and wonder if you can alleviate your student loan debt by lowering your monthly loan payments, you may want to consider refinancing your private student loans. An online tool like Credible can be useful in comparing student loan refinance rates from several lenders without affecting your credit score.
Is the interest on a student loan tax deductible?
Yes. When you file your taxes, you can deduct up to $ 2,500 in student loan interest paid in the 2020 tax year. And since this is an above-the-line deduction, you don’t have to itemize your deductions.
However, it is important to note that the tax deduction is available per file and not per person. So if you are married and you and your spouse have both paid student loan interest, you can still only deduct a maximum of $ 2,500.
If you are unsure of your tax situation, it may be a good idea to contact a tax professional or financial advisor. You can also use an online tool like Credible to learn more about student loan services and to see if you can refinance your private student loans at a lower rate.
CANCELLATION PLAN UP TO $ 50,000 IN STUDENT LOAN DEBT COULD COME WITH A TAX BOMB
Why is the interest on my student loan not tax deductible?
There are a few situations where you may not be eligible for the student loan deduction. If you are listed as a dependent on someone else’s tax returns, you are not eligible for the deduction. And if your deposit status is a separate deposit, you won’t be eligible.
And some types of student loans will not qualify for the interest deduction. For example, if you took out an education loan from a friend or family member, it will not qualify. You must have a qualified student loan manager.
If any of these situations sound familiar, you may not be eligible to deduct student loan interest from your taxes. Instead, you may want to consider refinancing your student loans to lower your monthly payments or change your repayment plans. Start using Credible today.
WHAT HAPPENS IF BIDEN’S STUDENT LOAN REDON PLAN IS SUCCESSFUL?
How to Qualify for the Student Loan Interest Deduction
To qualify for the student loan interest deduction, you will start by calculating your adjusted adjusted gross income. If your income is below the threshold, you are entitled to the full deduction. From there, you can deduct the interest paid on any qualifying student loan.
According to the IRS, a qualified student loan meets the following criteria:
- The loan was taken out by you, your spouse or a dependent. However, if your child is legally obligated to repay the loan, you are not allowed to claim the tax deduction.
- When you took out the loan, you were enrolled at least part-time in an approved public, private, or non-profit school. You can access the full list of eligible schools on the Ministry of Education website.
- You used the loan to pay for eligible education expenses, such as tuition, fees, books, and supplies for your classes.
- You used the loan within a reasonable time after receiving the funds.
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Is it worth deducting the interest on a student loan?
Deducting interest on student loans is a great opportunity to reduce your taxable income and save money. However, the amount of interest you can deduct depends on your income and how much you paid during the year.
If your income exceeds a certain threshold, you will no longer be entitled to the deduction. You can determine if you are eligible by calculating your modified adjusted gross income (MAGI).
If you are single, you will start to withdraw once your income exceeds $ 70,000 per year. Once you earn more than $ 85,000 per year, you will no longer be eligible for the deduction. For married couples, you will start to withdraw once your annual income is between $ 140,000 and $ 170,000.
Do you still have questions about tax situations and what are you entitled to? Consider seeking help from a tax professional or financial advisor.
ARE STUDENT LOANS TAXABLE INCOME?
How Much Money Can I Save With Loan Refinancing?
If you qualify for the tax deduction, you can save up to $ 2,500 per year on your taxable income. And if you’re looking to reduce your student loan payments even further, you may want to consider refinancing your private student loans.
When you refinance, you consolidate multiple student loans and refinance the entire loan balance at a lower rate. Because you’ll pay less interest, you’ll save money over the life of the loan.
You can use Credible to compare student loan refinance rates from several lenders at once without affecting your credit score.
However, if you refinance federal student loans, you will lose access to some borrower protections, such as income-based repayment plans and loan forbearance. And right now, federal student loan borrowers already have access to a grace period until September 2021 due to the coronavirus pandemic.
Refinancing private student loans can be useful for borrowers as they tend to carry higher interest rates. If you want to know how much you can save with loan refinancing, an online personal finance tool like Credible will allow you to compare rates from multiple lenders at once.
You can use this student loan refinance calculator to check your rates and get an idea of how much you can save and what your new monthly loan payment might be.