What you need to know about the tax deduction of interest on student loans

Each January, W-2 forms start to arrive in letterboxes or are hand-delivered. Federal law states that these forms must be postmarked or surrendered no later than January 31. What’s more, Form 1098-F, which is the student loan interest statement, is owed at the same time to anyone who paid $ 600 or more in student loan interest in the previous year.

Despite discussions during the last tax review to cancel the student loan deduction, the student loan interest tax deduction is still in effect for the tax year ending December 31, 2018.

[Read: 5 Ways the New Tax Law Affects Families Paying for College.]

As a reminder, the tax filing deadline is April 15 for all taxpayers except those in Maine or Massachusetts, whose deadline is April 17. Those who file an extension should remember that an extension only extends the reporting deadline until October 15, not the time to pay the taxes that are owed. If an extension is filed, the taxpayer will have to estimate their tax liability and pay it by the April due date to avoid penalties.

Here’s what borrowers need to know about student loan interest tax deduction when they start preparing their tax return.

The Internal Revenue Service has capped the interest deduction on student loans at $ 2,500 per year. This deduction is known as the above-the-line deduction and can be taken whether or not a consumer itemizes the deductions. This is because the “row” refers to adjusted gross income.

The actual amount of interest paid in 2018 is the only amount that can be used to determine the deduction; interest amounts less than $ 2,500 will be reduce taxable income by the amount actually paid.

If you don’t have your 1098-E handy and you’re not sure how much interest you’ve paid, you should contact your student lender to verify the amount. Most service websites allow you to access your Form 1098-E if you are signed in to your account.

[Read: Know the Tax Implications of Eliminating Student Loans.]

You must meet a number of criteria to be eligible for the interest deduction on student loans. First, the loan must cover qualified higher education expenses such as tuition, fees, books and supplies, and the student must have been enrolled at least part-time.

Second, the loan must be in the name of the filer or a qualified dependent, or the spouse, if married.

It is also important to know that married couples must jointly file in order to claim the deduction, which can only be used once. This is true even though both have student loans that they paid interest on during the year and the combined interest amount exceeds $ 2,500.

[Read: Common Tax Filing Rules for Student Loan Credits, Deductions.]

The interest tax deduction on student loans has income limits. Individuals with a modified adjusted gross income of less than $ 80,000 and couples with a MAGI of less than $ 165,000 are eligible, but once these limits are reached, the deduction is no longer available.

In fact, starting at $ 65,000 for single taxpayers, the amount of the deduction will start to decrease until the limit of $ 80,000 is reached. For married couples, the elimination period starts at $ 135,000 and ends at $ 165,000. Note that the deduction is available for parents who declare their student as a dependent, but the same income limits apply.

Finally, although the interest deduction on student loans was not changed by the new tax law, a change came out of the bill that affects anyone whose federal or private student loan has been. dump due to permanent disability. This debt forgiveness was previously taxed, but the new law states that discharges that occur from 2018 to 2025 will not be taxed.

More American News

6 tips for making the extra payments on your student loan correctly

How interest increases your student loan balance

3 benefits of making student loan payments with interest only

What you need to know about the tax deduction of interest on student loans originally appeared on usnews.com