How to get the student loan interest deduction

0

The student loan interest deduction provides tax relief for students and their parents who have taken on debt to pay for their education. It allows you to deduct up to $ 2,500 of interest paid from your taxable income.

Due to the ongoing pandemic, interest on most federal student loans has been suspended since March 13, 2020. You can still deduct interest paid before that date on your 2020 taxes, as well as interest on loans that don’t. were not eligible for this relief, such as private student loans.

Student loan interest is deductible if your modified adjusted gross income, or MAGI, is less than $ 70,000 ($ 140,000 if you are filing jointly). If your MAGI was between $ 70,000 and $ 85,000 ($ 170,000 in case of joint filing), you can deduct less than the maximum of $ 2,500.

The student loan interest deduction is not an itemized deduction – it is taken above the line. This means that it is subtracted from your taxable income to save you money. For example, if you fell in the 22% tax bracket, the maximum student loan interest deduction would put you $ 550 back in your pocket.

If you qualify, you can take advantage of both the student loan interest deduction and the standard deduction.

If your MAGI is less than $ 85,000 ($ 170,000 in case of joint filing), you can deduct student loan interest paid on federal and private student loans in the following cases:

You cannot claim the student loan interest deduction if your filing status is married and filed separately. You are also not eligible if you are listed as a dependent on someone else’s tax return.

If you paid more than $ 600 in interest in 2020, you will automatically receive Form 1098-E – a student loan interest deduction form – by mail or email.

You may have paid less than this amount because interest rates on federally owned loans were frozen at 0% and payments were suspended for most of the year. But you can still deduct anything you paid if you otherwise qualify.

If you do not receive a student loan interest deduction document, ask your to send it to you. A copy of the form, along with details of the amount of interest you paid, may also be in your account on your server’s website.

When you pay off student loans, you pay off the original balance and the interest accrued on that balance. You can deduct this interest on your taxes, but the full amount of the student loan payment is not tax deductible.

For example, suppose you have a student loan of $ 29,000 with an interest rate of 5%. At the start of the standard 10-year repayment plan, you would pay about $ 308 each month, of which about $ 121 of that payment would go towards student loan interest.

In your first year of repayment, you would repay $ 3,691 in total: $ 2,293 in principal and $ 1,398 in interest. If you were eligible for the student loan interest deduction, you could reduce your taxable income from the interest portion.

This not only includes newly accrued interest – like that $ 1,398 – but also any money that pays off interest that was capitalized or added to your balance when you entered the refund.

If you are still studying or paying tuition fees, the government offers . You can claim the US Opportunity Credit or the Lifetime Learning Credit, or opt for the tuition and fee deduction if you don’t qualify for a credit.

You can apply for these benefits even if you have paid for expenses with student loans. Your income and other factors can help you determine what will save you the most. As with the interest deduction on student loans, you must if you are married to qualify for these tax breaks.

Refinancing student loans can reduce the amount of interest you pay. If you have private loans, use the calculator below to estimate your potential savings. Don’t refinance federal student loans while payments and interest are suspended.


Source link

Share.

Comments are closed.