Save More on your Return with the Student Loan Interest Deduction
The student loan interest deduction is available to taxpayers who have student loans for higher education expenses. This deduction allows borrowers to deduct up to $2,500 in student loan interest payments from their adjusted gross income, helping to reduce tax liability for the year. As an “above-the-line” deduction, tax filers do not need to itemize to claim this deduction. Keep in mind, the limit of $2,500 applies per return, which means even if both you and your spouse paid student loan interest in the tax year, only up to $2,500 can be deducted from a joint return. In addition, this deduction is not available to filers under the status married filing separately.
Income limits
Like many other tax deductions aimed at lessening the tax burden on lower earning taxpayers, this deduction is phased out for borrowers based on your modified adjusted gross income (MAGI). If your MAGI is below $70,000 (or $140,000 if you are filing a joint return), you can claim up to the full $2,500 deduction. However, if your MAGI is more than this limit, the amount of the deduction you can claim reduces. Filers whose MAGI is over $85,000 (or $170,000 if you are filing a joint return), will not be able to claim the deduction at all.
Qualifying for the deduction
You may be able to claim the deduction if you fall within the income limits and you meet the following requirements:
- You paid interest on a qualified student loan in 2021
- You are obligated to pay interest on the qualified student loan by the terms of the loan contract
- You cannot be claimed as a dependent on someone else’s return. If you are married, filing jointly, then your spouse also cannot be claimed as a dependent by someone else
- You will not be filing under the status married filing separately
What is a qualified student loan?
Interest paid on student loans, public or private, may be deducted if the loans meet the following qualifications:
- The loan must have been borrowed for you, your spouse, or a dependent
- The loan was paid toward qualified education expenses such as tuition, fees, housing, books, and other necessary expenses like class supplies or transportation
- The student was enrolled at least half-time in a program that leads to a degree or certificate
- The loan was disbursed within 90 days of the start or end of the academic period for which the expenses were paid
- The loan did NOT come from a related person or entity, or a qualified employer plan
Look out for Form 1098-E
The tax form you should receive from your lenders to help you file for this deduction is the 1098-E. You should receive this form from all lenders to whom you paid $600 or more in interest. You will likely also receive this form from lenders who received less than $600 in interest as well, so be sure to find this form in the mail or in the borrower portal online from your loan providers.
Be sure to provide all 1098-E forms you receive to your tax preparer to help maximize your potential deductions for 2021.
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
Share Post:
