How To Get The Interest Deduction On Student Loans Ranger student loan

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The advent of a new year is the time to start preparing to file income taxes. This year, this process for many student loan borrowers includes understanding the implications of the coronavirus pandemic on the possibility of obtaining an interest deduction on student loans for 2020.

While the CARES Act of March 2020 temporarily suspended payments, froze interest rates at 0%, and halted debt collection for most federal student loans until January 31, 2021 – thanks to term extensions. ‘forbearance – borrowers of outstanding student loans had to make payments for a few months in early 2020.

In October, less than 11% of people on federal student loans had chosen to continue making payments during the automatic forbearance period, according to an analysis of the data by Mark Kantrowitz, a financial aid expert.

Although President-elect Joe Biden’s transition team announced last week that his administration will extend the CARES Act student loan relief after he takes office on January 20, it’s still a good time for borrowers. understand the deduction of interest on student loans, whether they made payments only. in the months leading up to the CARES Act of 2020 or continued to repay their debt throughout the year.

View the student loan interest statement

To find out how much interest paid on student loans you can deduct on your federal income tax return, start with the Student Loan Interest Statement, the Internal Revenue Service form used to help eligible borrowers claim a deduction. partial or total. The return, also known as Form 1098-E, is a tax form that all student loan managers and lenders are required to send to borrowers who have paid $ 600 or more in interest on a student loan at during the tax year.

As shown on this example of a 1098-E On the IRS website, the form allows the administrator or lender to list all interest included in student loan payments during the entire tax year. Borrowers use this information to include the interest deductible amount on the primary federal tax form, the 1040, or the new simplified federal tax form option for seniors, the 1040-SR.

For borrowers with qualified student loans held by more than one lender or manager, a 1098-E will be issued by each. To qualify for a possible interest deduction, a student loan must have been used for qualified higher education expenses such as tuition, and the loan must be in the name of the filer or a spouse or partner. a qualified dependent.

If you paid at least $ 600 in student loan interest in 2020, be on the lookout for the form that will arrive in the coming weeks. Federal law requires that 1098-E forms be delivered to borrowers or stamped no later than January 31. Also note that student loan service websites typically offer online access to 1098-E forms, which borrowers can view by signing into their account.

Know the income eligibility for the interest deduction on student loans

Just because a borrower receives a Form 1098-E does not mean that he or she is automatically eligible for the interest deduction on student loans. The IRS uses modified adjusted gross income, also known as MAGI, to determine whether tax filers qualify for an interest deduction on student loans.

For 2020 taxes, which are due in 2021, the maximum interest deduction on student loans is $ 2,500 for a single filer, head of household, or eligible widow or widower whose adjusted gross income is less than $ 70,000.

For these filers, once their MAGI reaches $ 70,000, the interest deduction begins to disappear. This means that the maximum deduction allowed at that time will be less than the full $ 2,500 and gradually decrease to a modified adjusted gross income of $ 85,000, after which the interest deduction can no longer be claimed.

Married and jointly filing taxpayers can deduct up to the maximum when their modified adjusted gross income is less than $ 140,000. The deduction begins to gradually disappear at this amount and is completely eliminated once joint income reaches $ 170,000.

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