Is Student Loan Interest Tax Deductible?
Now it is nearing the start of the tax season and soon you will be receiving all your tax forms from companies you work for with W 2 forms, mortgage and rent statements, bank statements, and most importantly your student loan tax documentations. Many people say that most of the students, both still in college and the graduates, forget to claim the interest they paid on their student loans; mostly because they think it won’t make much difference in their tax deduction for the small amount of loan interest they got charged. Here we will talk about some of the most frequently asked questions about student loan interest tax deduction.
Is interest paid on student loan tax deductible? Yes, it is. You should look into the 1099 form that you received in the mail to guide you through how much exactly you paid as an interest. So when you file your tax return, under the education tax credit categories you will see the space where you get to add in the student loans interest as a deduction.
What are the requirements and who are eligible for this tax year 2009? Not everybody who applied for student loans qualify to claim this deduction. First of all, that student loan has to be a qualified one – you took it solely for the purpose of higher education expenses and it was disbursed as such. Secondly, the borrower has to have paid interest on his or her student loans in tax year. If you are separately, your modified adjusted gross income (MAGI) can not be more than $70,000; whereas if you are filing jointly it your MAGI should be less than $145,000 for this year. Also you can not be claimed as dependents on someone else’s return, that is if you and your spouse are filing the tax jointly.
What’s the maximum deduction you can claim on student loan interest? It is $2,500. Therefore, you can reduce your income by $2,500 when you file for taxes claiming this deductible; however, there are some limitations to this deduction. The $2,500 student loan interest deductible one only applies to somebody MAGI is less than $50,000 and interest paid on student loans are equal or higher to $2500. So if your MAGI is higher $50,000 or student interest loans paid is less than $2500 or both, this deductible will go down and you will end up paying higher taxes. If you don’t know how much exactly you paid for the interests, don’t worry. Your lender will send you a Form 1098-E. If not, contact them for a copy. You will find the information you need in the box 1 of the form 1098-E.
So should I use the itemize deduction or standard deduction to get this deduction? Either one will work. Both does it with little difference, but at the end the total is same amount.
However, you can use the college tuition on your taxes either as a adjustment to the income or as a Hope or Lifetime Learning credit. But the exception to this rule is if the money you used for the college tuition came from scholarships, fellowship, grant, education savings account funds, or your employer-provided educational tuition and other college expenses assistance.
What about the loan itself, student loans payment are tax deductible? No. Whether you paid this year, last year or deferred to pay in the future, the payments you made on student loans are not tax deductible. Again the tax deductible is the payments you made against the INTERESTs you get charged on your student loan interest during that tax specific tax year.
This article is useful for following information:
- how much student loan interest is tax deductible