The Student Loan Interest Tax Deduction: Are You Taking Advantage of It?
Did you know you can deduct the interest you pay on your student loans in your taxes? You can deduct student loan interest not only for yourself, but also for your spouse—if you’re filing jointly—as well as for any dependents. The tax deduction is “above the line,” meaning that you can take the deduction whether or not you itemize. However, there are a few limitations to taking this deduction. Here’s how to do it.
Remember the limits
You can only deduct as much as $2,500 every year in student loan interest. In addition, you can only deduct that much if you make $60,000 per year or less (or $120,000 per year or less for married couples who file jointly). You may have to deduct less if you make more than these two figures.
If you make over $75,000 as a single person or $150,000 as part of a married couple filing jointly, you cannot deduct any student loan interest.
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Even with all the qualifications, many people qualify to deduct the interest on your student loans.
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So far, the ability to deduct student loan interest will be available through 2012. In 2013, an older law will take effect—in which you can deduct your student loan interest only for the first sixty months of repayment.
You can’t get the tax break if you are a dependent
If someone else is claiming you as a dependent, you can’t get deduct your student loan interest yourself—even if you’re paying it yourself. The person who claims you as a dependent gets to take the deduction.
Your lender should send you the needed info—usually
If you paid more than $600 in interest total over the past year, the IRS is supposed to send you a Form 1098-E detailing how much you paid. If you paid less than $600 throughout the year, you can still take the deduction—but your lender doesn’t have to send you the form. You can, however, contact the lender and ask them how much you paid.
Qualified expenses only
You can only deduct interest from loans used to pay what the IRS considers “qualified expenses.” These include tuition and fees, room and board, books and school supplies, and other expenses necessary for going to college online. In addition, the expenses need to have been paid for during a “reasonable” period of time either before or after the loan was issued. The IRS generally considers a “reasonable” period of time to be 90 days before or after the academic period.
Qualified loans only
You can only claim interest deductions on a “qualified” loan—meaning a loan in your name, your spouse’s name, or the name of a dependent. You can’t write off the interest for a loan that was taken out for you by a parent or grandparent, for example, or a loan that’s part of an employer plan.
Qualified institutions only
The IRS defines “eligible institutions” as any that qualify for the federal aid programs run by the US Department of Education. This includes most nonprofit, for-profit, and vocational schools in the US. It’s even possible to find schools outside of the US that are considered eligible.
You have to be at least a part-time student
The definition of “part-time” can vary depending on the rules of your college.
Even with all the qualifications, many people qualify to deduct the interest on your student loans. If you’re not deducting interest, you could be losing money at tax time. If in doubt, talk to a tax professional to see if you qualify.
Sources
Sources:
TaxDebtHelp: Is My Student Loan Interest Tax Deductible?
Forbes.com: Deduct This: The History of Student Loan Deductions
American Debt Project: Quick Tips: Don’t Forget Your Student Loan Interest Tax Deduction
More About Understanding Student Loans
- Credit Repair Services You Should Never Pay For
- Questions You Should Ask Before Applying for Student Loan Forbearance
- The Bank on Students Act: What It Is, and How It Could Help Student Borrowers
- How the Death of a Co-Signer Can Affect Your Student Loan
- Peer-to-Peer Student Loans: What They Are, and How They Can Help You Pay for College
- If You're Unable to Work Because of a Disability: What Happens to Your Student Loan?
- New Rules for Debt Collectors: How They Could Affect Your Student Loan
- Having Trouble Repaying Loans? The Department of Education May Be in Touch
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