[ad_1]
The student loan interest tax deduction is intended for students and their parents who repay federal student financial assistance. This is the “above the line” adjustment of your adjusted gross income (AGI) if you paid interest to a qualifying loan program during 2021. It may be taken whether you itemize the deductions or take the standard deduction. Here’s what you need to know about this deduction, when it can be applied, and how to calculate your deduction.
A Financial Advisor can provide you with valuable information and advice as you seek to benefit from all the deductions and credits to which you are entitled.
Basics of deducting interest on student loans
You get the full amount of your allowable interest deduction on your AGI because it is above the line and not an itemized deduction, although it can be taken whether or not you itemize the deductions. The highest amount you can claim for an interest deductible student loan is $ 2,500 for 2021, but this is limited by your income eligibility. You may have paid more interest than that during the year, but that’s the limit of your claim.
If you are single, head of household, or eligible widower or widower, the phase-out of your student loan interest starts at $ 70,000 AGI modified and elimination ends at $ 85,000. If you are married, you can earn $ 140,000 before the phase-out begins. You can earn up to $ 170,000, which is the level at which the phase-out ends.
Keep in mind that the pandemic led to March 2020 CARES Law, which suspended student loan payments, froze interest rates at 0% and halted debt collection until it expired. The latest extension set the expiration date for September 30, 2021. However, President Biden has announced that he will extend the deferral period again to January 31, 2022. In some situations, the student loan interest is not charged. not subject to this waiver and must be paid regardless.
Which student loans are eligible and which are not?
Student loans eligible for interest relief during the pandemic are all loans held by the Department of Education. These are Direct, Subsidized and Unsubsidized Loans Stafford loans, Parents and Graduates Plus Loans, and Consolidation Loans. There are many student loans that do not qualify for interest relief. These are Federal Family Education Loans (FFELs) and Perkins Loans, if held commercially by lending institutions. If they are held by the Ministry of Education, they are also covered.
The only student loans that qualify for the deduction for interest on student loans are those that are intended for you, your spouse or a dependent and that are for eligible educational expenses. Private loans or loans an employee-sponsored plan are not eligible. The loan must be for an academic term and the student must be at least part-time to be eligible.
Eligible study expenses and Eligibility
Eligible study costs are:
If you are single, you are entitled to the student loan interest deduction if you declare as single, head of family or eligible widower (s). If you are married, you are eligible if you are filing a joint return. You are not eligible if you are married and are filing separately. You cannot be listed as a dependent when someone else returns. If your child has completed the loan applications, you are not eligible even if you make the payments.
Calculating your interest deduction on student loans
You get the amount of eligible interest you paid in 2021 from the organizations to which you owe interest on Form 1098-E. Depending on your loans, you may receive more than one Form 1098-E. Any lender to whom you paid $ 600 or more in interest in 2021 is required to send you this form.
You enter the amount of your student loan interest deduction on Schedule 1, line 20, of the Internal Revenue Service (IRS) 2021 Form 1040. This will be the total of your interest from all of your 1098-E forms. Add this to all other entries on Schedule 1 and total on line 22. Bring the total from line 22 to Form 1040 and complete line 10A.
As a result, deducting interest on student loans will reduce your AGI, which in turn will reduce your tax liability.
The bottom line
The student loan interest deduction is valuable for taxpayers with student loan debt because it is a deduction written off before your AGI is calculated. You benefit from the full deduction to which you are entitled. People who don’t detail their deductions also fully benefit from the deduction of interest on student loans to which they are entitled.
Tips for filing your taxes
Photo credit: © iStock.com / SDI Productions, © iStock.com / fizkes, © iStock.com / fizkes
The post office 2021 student loan interest deduction appeared first on SmartAsset Blog.
[ad_2]