Student Loan Deduction
Jun 02, 2015
With the ever-increasing cost of higher education, most students (or their parents) will have loan payments that extend long after the cap and gowns are put away. The good news is that the interest paid on student loans may provide you an income tax deduction.
The deduction can reduce the amount of your income subject to tax by up to $2,500. The student loan interest deduction is claimed as an adjustment to income—meaning you can claim it even if you don’t itemize deductions on Schedule A.
Deductible interest on a qualified student loan means a loan you took out to pay for qualified education expenses including tuition, room and board, and books, supplies and equipment for attendance at a postsecondary educational institution. This includes most accredited colleges, universities, and vocational schools. Loans for attending graduate school qualify as well.
The loan must be to pay educational expenses for you, your spouse, or a person who was your dependent when you took out the loan. The student must be enrolled at least half-time in a degree program.
The amount deductible is phased out for those with modified adjusted gross income of over $65,000 ($130,000 if married filing a joint return). Married individuals filing separately cannot take the deduction. You cannot take the deduction if you are claimed as a dependent on someone else’s return.
There are no time limits for taking the deduction; as long as you are making payments on the student loan, the interest is potentially deductible. The deduction is available only to persons legally obligated to make payments under the terms of the loan.
No one enjoys having outstanding student loans long past graduation, but realizing the income tax savings can help take out some of the sting of making the payments.
By: George Monger, CPA