A student loan tax deduction is a special tax break available to you when filing your income taxes. The student loan interest deduction allows individuals who are paying back their student loans to reduce their taxable income by the amount of money they pay on those loans during the year. This means that if you’re eligible for this type of deduction, it could lower your total tax bill for the year.
Can Student Loan Interest Be Deducted
1 Student loan interest is the interest you pay on your education loans (both federal and private) over the life of your student loan. If you have a subsidized student loan, this will include the interest that accrues on your student loans while you’re in school.
Student loan interest is the interest you pay on your education loans (both federal and private) over the life of your student loan. If you have a subsidized student loan, this will include the interest that accrues on your student loans while you’re in school.
Because of this, if you have multiple subsidized or unsubsidized loans, it can be difficult to tell which ones are eligible for the deduction and which ones aren’t.
Here’s how it works:
2 Are you eligible for the student loan tax deduction?
You are eligible for the student loan tax deduction if you have a qualified student loan and have paid interest on that loan during the year. You must also be legally obligated to make payments on the loan, which means your name is on the note as a borrower. If you are married filing separately, it does not matter whether or not your spouse has co-signed for any of your loans; if you want to take advantage of this deduction, you will need to file as “married filing separately.”
3 The two main ways to deduct your student loan interest are to itemize or take the standard deduction.
There are two ways to deduct student loan interest. You can either itemize your deductions on Schedule A of your tax return, or you can take the standard deduction. The student loan interest deduction is an adjustment to income, so it will lower your adjusted gross income (AGI) and may make other deductions, such as IRA contributions or charitable contributions, more valuable for you.
4 The deduction for student loan interest is limited based on how much you earned for the year.
The limit on this deduction depends on how much you earned for the year. If your income is less than $75,000, you can deduct the interest paid on your student loans up to $2,500. However, if your income exceeds $75,000 but is less than $165,000, only half of what remains over $25 after subtracting any deductions that are allowable expenses will be deductible. In other words:
$(Income + Student Loan Interest – Other Deductions) = (Deductible Student Loan Interest – Not Deductible Student Loan Interest)
If You Received a Refund Check from Your Student Loans and Paid Down Some Balance: You’ll Need To Report It When You File Your Tax Returns!
5 Don’t forget about the Lifetime Learning Credit.
The Lifetime Learning Credit is a non-refundable credit that allows you to claim up to $2,000 in education expenses for yourself, your spouse or any dependent you have.
- You can claim the credits if you paid for classes at any eligible school, including technical schools and colleges.
- The amount of your Lifetime Learning Credit depends on your income and your filing status:
o If you’re single or head of household and have an adjusted gross income (AGI) of $55,000 or less for 2018 ($65,000 if married filing jointly), then you can take a full Lifetime Learning Credit worth up to $2,000.
o If your modified AGI is between $55,001 and $66,000 (or between $65,001 and $81,000 if married filing jointly), then it’s prorated based on 10% of the difference between your modified AGI and the phaseout threshold–so 0%-20% of the credit would be allowed (for example).
6 You might be able to deduct up to $2,500 of student loan interest from your taxable income when filing your income taxes. However, there are qualifications you must meet to be eligible for this tax deduction, as well as some limitations.
You might be able to deduct up to $2,500 of student loan interest from your taxable income when filing your income taxes. However, there are qualifications you must meet to be eligible for this tax deduction, as well as some limitations.
You must be legally obligated to pay interest on a qualified student loan. In other words, the loan must have been used for educational purposes as defined by the IRS and you must have signed an agreement with a lender or financial institution promising to pay back this debt.
You must have paid interest on a qualified student loan in order to qualify for the deduction. This means that if you borrowed money and did not actually pay any interest during the year because payments were deferred until after graduation or because some other reason prevented them from being made (such as illness or unemployment), then it cannot be deducted from your taxable income on Form 1040 UPDF
In order to take advantage of this tax deduction, you must file your taxes with an itemized deduction or use the standard deduction and have taxable income greater than $100,000. The student loan interest deduction can also be used when filing separate returns, if married and filing jointly with a spouse who is not eligible for another tax benefit like the Lifetime Learning Credit. But keep in mind that if you’re married filing separately and both spouses have substantial student loan interest payments throughout their careers (which may be unlikely), neither of them could claim any deductions related to those loans.