There are many ways people try to alleviate the costs associated with higher education. But did you know you could potentially save money by deducting student loan interest?
If your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return), there is a special deduction available for paying interest on a student loan used for higher education (includes both voluntary and required interest payments). This specific deduction can reduce the amount of your income subject to tax by up to $2,500. Even if you don’t itemize, the student loan interest deduction is available. It’s technically taken as an adjustment to income.
As with any deduction, there are various qualifications you must meet. The loan must have been taken out for education expenses only. This includes tuition, room and board, books and supplies, and other necessary expenses such as transportation. The student must also be you, your spouse, or your dependent and the student must be enrolled at least half-time in a degree program. Fortunately, there is not a time limit on the deduction. You can continue to deduct interest paid during the year on your student loan until the loan is paid off.
For a quick look at student loan interest deduction, the IRS created this helpful table.*
||You can reduce your income subject to tax by up to $2,500.
||Your student loan:
•must have been taken out solely to pay qualified education expenses, and
•cannot be from a related person or made under a qualified employer plan.
||The student must be:
•you, your spouse, or your dependent, and
•enrolled at least half-time in a degree program.
|Time limit on deduction
||You can deduct interest paid during the remaining period of your student loan.
|Limit on modified adjusted gross income (MAGI)
||$155,000 if married filing a joint return;
$75,000 if single, head of household, or qualifying widow(er).
for further details and examples on deducting student loan interest.
The above is not intended to be tax advice, was not written by a tax professional and is informational only. Please consult a tax advisor for your specific situation.