Student loan interest deduction: what is it and how to claim it

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What is the student loan interest deduction?

The interest deduction on student loans is a tax benefit that can offset the cost of borrowing to pay for your education. If you paid interest during the year on a qualifying student loan, you may be eligible for the student loan interest deduction. Claimed as an adjustment to your income, you don’t need to itemize the deductions to take it.

If you qualify, you can deduct up to $ 2,500 in student loan interest per year. When your modified adjusted gross income (MAGI) reaches the annual limit of your tax declaration status, the deduction will be gradually reduced and possibly eliminated, according to the IRS.

How to Qualify for the Student Loan Interest Deduction

You must meet all of the following conditions to claim the interest deduction on qualifying student loans.

  1. You are legally required to pay interest on a qualifying student loan.
  2. You paid interest on a qualifying student loan in the year you apply the deduction.
  3. If you are married, you file jointly.
  4. Your modified adjusted gross income (MAGI) – all income you’ve earned in a year minus some deductions – is below the annual limit set by the IRS for your tax reporting status.
  5. You or your spouse, if you are filing jointly, cannot be considered a dependent on another person’s income tax return.

Education expenses eligible for the student loan interest deduction include:

  • Tuition and fees.
  • Room and board.
  • Any course expenses, including books, supplies, fees and required equipment.
  • Other necessary expenses, such as transportation.

Income limits: phase-out of the deduction for interest on student loans

Your modified adjusted gross income determines your eligibility for an interest deduction on student loans. Here’s when the phase-out begins and ends depending on the status of your deposit:

Filing status The phase-out begins with MAGI of… The elimination ends with MAGI of …
Alone $ 70,000 $ 85,000
Head of household $ 70,000 $ 85,000
Eligible widower (s) $ 70,000 $ 85,000
Married spouse filing $ 140,000 $ 170,000
Separate marriage deposit Ineligible Ineligible

Can I deduct the interest on a student loan?

To deduct the interest on the student loan, the qualifying student loan you have taken out must be used to pay your education costs or the education costs of a spouse or dependent while attending college. or an eligible university. The financial institution must qualify to participate in the program as determined by the US Department of Education.

Some other educational institutions may also be eligible, such as technical and vocational schools, for-profit and non-profit institutions, or other post-secondary institutions. The loan must be made by you and not by an employer benefit plan or a parent, and you must repay the loan within a realistic time frame. However, the IRS is flexible if you make an effort to reimburse it.

The Student Loan Interest Statement, IRS Form 1098-E, is the form used to report student loan interest payments to you and to the IRS. Your loan officer (s) will provide at least one Form 1098-E if you paid $ 600 or more in interest during the tax year.

Can I deduct student loan payments?

You cannot deduct the principal payments you make on your student loans, but you can deduct the interest portion of the student loan payments, up to a maximum of $ 2,500.

In a 2020 College Council Report, the average tuition fee in the state to attend a four-year public college in 2020-2021 averaged $ 26,820. For international students in public colleges, tuition fees averaged $ 43,280 and tuition in private colleges was $ 54,880.

With tuition fees rising every year, don’t leave money on the table. If you qualify, take advantage of the student loan interest deduction.


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