Interest Student Loan Deduction
The student loan interest deduction is a popular tax break that allows you to deduct the amount of interest you paid in the year on your qualified student loans. You can claim this deduction even if you don’t itemize deductions on your federal income tax return or if you take the standard deduction instead. However, if you qualify for this tax break, it could add up to big savings on your return. This article explains who qualifies for this deduction and how much they can deduct.
About the deduction
If you’re a student and you have student loan debt, it’s important that you know about the interest deduction. This deduction can be used to reduce your taxable income by up to $2,500 per year if your modified adjusted gross income (MAGI) is less than $80,000 or $160,000 for joint filers. The amount that can be deducted depends on your filing status: If you’re single and under age 65 with MAGI of $65,000 or less in 2019—or married and filing jointly with MAGI of $135,000 or less in 2019—you are eligible for a full $2,500 annual interest deduction on up to $10,000 worth of student loan interest paid during the year. If your MAGI exceeds those thresholds but isn’t more than double them ($130K/$260K), then half of the remaining deductible interest may be reported as a tax credit instead of an itemized deduction.
Who Can Claim the Deduction
You may claim the interest deduction if you are legally obligated to pay interest on a qualified student loan. The payment of principal, as well as the payment of accrued but unpaid interest, is also considered a qualified education expense.
To qualify for this tax break, you must be legally obligated to make payments at the time you file your return.
Which Loans Qualify
- Federal student loans.
- Private student loans.
- Student loans that are not eligible for a tax deduction include:
- student loan consolidation, or any other type of borrower-initiated refinancing or restructuring of your debt.
plane tickets to fly home after graduation (unless you’re studying away from home). The IRS says you can either deduct the actual cost of these plane tickets or use an IRS-approved mileage rate that reimburses drivers for travel expenses if they don’t have receipts for their expenses, but it doesn’t matter which method you choose as long as it’s reasonable and accurate based on what’s allowed by the IRS.
How Much You Can Deduct
The student loan interest deduction is available to both single and married filers. However, the deduction is not available for head of household filers. It’s also worth noting that the deduction isn’t available to married couples who file separately.
As mentioned above, the standard deduction amount for your filing status has increased in 2019 by $100. This means that if you’re a single person or married couple filing jointly and your total tax bill is less than $119,350 (for single filers), then you can take advantage of this new deduction without having to itemize expenses.
Use IRS Form 1098-E to Report Interest Paid
Form 1098-E is the form that you’ll use to record the amount of interest paid on your student-loan debt. It’s given to you by your lender and will come in handy when filing your taxes next year.
To properly fill out this form, you need to know which box applies to your situation:
- Box 1a: The total amount of unsubsidized loans borrowed for the tax year
- Box 1b: The total amount of subsidized loans borrowed for the tax year
- Box 2a: The total interest paid on those loans during the tax year (this should match what’s reported on Line 7 of IRS Form 1040 or 1040A)
Getting a Head Start on Next Year’s Tax Return
The first thing to do when preparing your tax return is to start with last year’s return. This is often the most accurate, since you’ll have all of the information from previous years in front of you. But if you haven’t kept up with any paperwork—or if it’s been awhile since your last tax filing—you might need some help getting started.
Here are some ways to get started:
- Use tax preparation software like TurboTax or H&R Block at home and download their apps onto your device so they can be pre-filled with all of your personal information during this process (TurboTax also has mobile versions).
- Consult the IRS’ Tax Topic Index for guidance on specific topics related specifically related directly relevant topic(s) covered within this article; these include things like student loan deductions/exclusions, 401k contributions/deductions etcetera; scroll down until find relevant page number then click on link provided above each section title which will take user directly into respective section within main body text itself – see below example screenshot example taken from website shown below:
You can deduct up to $2,500 in interest paid on qualifying student loans.
The student loan interest deduction allows you to deduct up to $2,500 in interest paid on qualifying student loans. You can only deduct interest on student loans used for qualified education expenses during the tax year.
If you’re married filing jointly, you and your spouse are both eligible for the full $2,500 student loan deduction if at least one of you has a modified adjusted gross income (MAGI) of less than $80,000 ($165,000 if filing jointly). If either spouse has a MAGI between $80,000 and $100,000 ($165k-200k), then half of their total deduction will be disallowed. The same holds true for couples with MAGIs over $100k or more: They get no deduction at all!
Remember, you can deduct up to $2,500 in interest paid on qualifying student loans. You can claim the deduction if you paid interest on a qualified student loan for yourself or for your spouse. You’ll need to file Form 1040 and itemize your deductions on Schedule A, along with other miscellaneous expenses like unreimbursed employee business expenses, tax preparation fees and charitable contributions (which are also deductible). If you pay less than $600 in interest during the year, it’s not worth claiming at all because it would cost more than what you’d save by taking advantage of this deduction! But if you’re paying more than that amount – go ahead and get started now so that when April rolls around there will be no surprises when filing time arrives next year!