Taxes and Your Student Loan Interest
What should you know about taxes and your student loan interest? The most important thing to realize is that student loan interest in deductible, so it can really help you to be aware of what you’re paying and what forms you’ll need once tax time comes. In fact, you may actually be surprised by how flexible the IRS is about letting you deduct this interest.
Unlike some other common deductions, the IRS allows you to deduct student loan interest whether you itemize your deductions or take the standard deduction. In addition, you can deduct the interest if you paid the loan interest for yourself, your spouse (if you are filing jointly) or if you are paying student loans for your dependents. All you need to do is keep your eye out in January for the form 1098-E that you will receive from your lender and read on about any limits and/or parameters that might pertain to your situation.
Are There Any Limits?
As with most good things, there is a bit of fine print, or limits to follow in order to take advantage of the deduction. For example, the IRS limits the amount of student loans that you can deduct each year. Right now, that amount is $2,500. The deduction is also limited by your annual income, and this calculation is made using what is called a modified adjusted gross income (MAGI) and you are not allowed to deduct student loan interest if you are married but filing separately. In addition, the student must be enrolled in a minimum of a ½ time program that leads to a degree, certificate or educational credential. Finally, the school must meet student aid program guidelines in order to be an eligible education institution.
Other Important Things to Note
You can only deduct loans that paid for actual education expenses. If other non-education expenses were rolled into the loan, the student loan interest from this loan is likely not eligible. Deductible expenses include tuition, room, board, books, equipment, supplies, and even transportation expenses that might be necessary.
One other big thing in your favor? You can deduct the student loan interest on your loan even if someone else helps you pay it off. So, if you get help from a family member (or friends) and they help make some monthly loan payments, you can still deduct the full amount of interest when it comes tax time.
What If You Still Have Questions?
One good source for information related to student loan interest deduction guidelines is, of course, the IRS website. If you still have questions or if your situation is complicated, you might also want to seek the help of a reputable tax firm that can help apply the tax law to your specific situation.
Success Tax Relief has been working with clients on a wide variety of complex tax issues for more than 30 years. Whether you simply need a few questions answered or are looking for more in-depth help with a complex tax issue, we’re here to help. Contact us today!