Student loan interest deduction
With the high cost of college, many students look to student loans to finance their college experience.
While the cost of college can add up, there is a potential tax deduction you can take. The student loan interest tax deduction can help make higher education expenses more affordable.
While you may be on your way to college, in college, or out, this post will discuss the student loan interest deduction. So, if you will someday or are currently making student loan interest payments to pay back what you took to finance your higher education, tune in!
Related: Check out our student tax filing guide.
Is student loan interest deductible?
If you’re wondering, “Is student loan interest deductible?” The answer is yes. In fact, federal student loan borrowers could qualify to deduct up to $2,500 of student loan interest per tax return per tax year. You can claim the student loan interest tax deduction as an adjustment to income. You don’t need to itemize deductions to claim it.
What is student loan interest?
Student loan interest is the interest you paid during the year on a qualified student loan (sometimes called a qualified education loan). Student loan interest can be found on Form 1098-E, from the lender. A tuition statement (form 1098-T) shows the tuition and scholarship information. A qualified student loan is a loan you took out only to pay qualified education expenses that were:
- For you, your spouse, or a person who was your dependent when you took out the loan
- Paid or incurred within a reasonable period of time before or after you took out the loan
- For education provided during an academic period for an eligible student
Loans from these sources aren’t considered qualified student loans:
- Related person
- Qualified employer plan
Qualified education expenses are the total costs to attend an eligible school. This includes graduate school. The costs include:
- Tuition and fees
- Room and board
- Books, supplies, and equipment
- Other necessary related expenses, like transportation
You can usually claim the student loan tax deduction if you meet all these requirements:
- Your filing status is any status except married filing separately.
- No one else is claiming you as a dependent.
- You’re legally obligated to pay interest on a qualified student loan.
- You paid interest on a qualified student loan.
If you’re Married Filing Jointly:
- You can deduct the full $2,500 if your modified adjusted gross income (AGI) is $155,000 or less.
- Your student loan deduction is gradually reduced if your modified AGI is more than $155,000 but less than $185,000.
- You can’t claim a deduction if your modified AGI is $185,000 or more.
If you’re filing as Single, Head of Household, or Qualified Surviving Spouse:
- You can claim the full $2,500 student loan deduction if your modified AGI is $75,000 or less.
- Your deduction is gradually reduced if your modified AGI is $75,000 but less than $90,000.
- You can’t claim a deduction if your modified AGI is $90,000 or more.
How the student loan interest deduction works
If you pass the qualifications above, you probably want to know how the student loan interest deduction works. Like any other tax deduction, it lowers your taxable income, and in some instances could lower your tax bracket.
This deduction is above the line, meaning it’s an adjustment to your taxable income, and you don’t have to itemize your taxes to claim it. You can subtract up to $2,500 of interest paid from your income when calculating AGI.
Where to go for more help with student loan tax deduction
To learn more specific tax information, see Chapter 4 of the Internal Revenue Service Publication 970: Tax Benefits for Higher Education at www.irs.gov. To get hands-on guidance, get help from H&R Block. At H&R Block, you can find the expertise you need. Whether you file on your own with H&R Block Online or file with a tax pro, we’ll be there with you every step of the way.
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