Can I deduct student loan interest?

August 01, 2019 by Selena Quintanilla
student loans

So, Selena...  
  
I'm considering going back to school but will likely need to take out a student loan to do so. Just thinking about interest rates makes my head spin. Is student loan interest deductible?  
  
- Daisy  
  
  
So, Daisy...  
  
Thinking about furthering your education is huge! If the career you're pursuing is sustainable, you shouldn't let the thought of student loan payments deter you.  
  
Now let's talk tax. In short, yes, you can deduct student loan interest on your federal tax return. Is it ever that simple? Hardly ever.  
  
Here's what you should know: 
   
The student loan interest deduction is designed to lessen the tax burden for those who earn low to moderate income. Because of this, the amount of the deduction you can claim will vary and will completely phase-out when Adjusted Gross Income, or AGI, limits are reached. Like any deduction, you need to meet specific requirements to claim this deduction on your tax return. 
 
Here are some general guidelines: 
 

  • You must have paid student loan interest for the year. 
  • You cannot be a dependent on someone else’s tax return. 
  • You must have a legal obligation to pay interest on a qualified student loan. 
    • You cannot make loan payments for a friend and attempt to claim the deduction on your tax return. 
  • You will not be filing MFS (Married Filing Separately).
    • Your filing status must be Single, Head of Household, Married Filing Joint, or Qualified Widower. 
  • The loan must be a qualified student loan.
    • The IRS defines a qualifying student loan as a loan obtained for the sole purpose of paying qualified education expenses for yourself, your spouse or someone who was your dependent at the time the loan was taken out. 
 
Let’s assume that you go back to school this year and begin paying interest on your student loans while taking classes.
 
The maximum amount you can deduct per tax return in 2019 will remain $2,500. For 2019 tax returns (to be filed in 2020), the deduction begins to phase out at $70,000 ($140,000 for joint filers), meaning that once your Adjusted Gross Income for the year reaches this value, the amount you can claim of the Student Loan Interest deduction will gradually decrease. The deduction completely phases out at $85,000 ($170,000 for joint filers), meaning that if your AGI reaches or exceeds this value, you will be ineligible to claim any amount of the Student Loan Interest deduction.

So, if you're single, make under $70,000 for the year and meet all other requirements, you can deduct up to $2,500 in student loan interest payments. However, you can only claim a deduction for the amount of student loan interest that you actually paid for the year. So, if you paid $1,200 in interest, you could deduct up to that amount. If you want to noodle with some numbers, there’s a tool on the IRS website that can help you determine your eligibility for this deduction and other education credits.

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Selena Quintanilla, CTEC
Communications Associate

 

Selena Quintanilla is a Communications Associate at TaxAudit, and a California Tax Education Council (CTEC) registered tax professional. She is now on a mission to bring clarity and comprehensibility to a topic that keeps us all up at night at least once a year-TAXES! Please, send coffee! 


 

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