How to Deduct Your Student Loans?Under some specific circumstances, you may be able to save on your tax bill by deducting the interest you pay on your student loans. You can make a total deduction of as much as $2,500 from your taxable income. You don’t even need to itemize to claim this deduction.
If you’re one of those lucky enough to have navigated your way into college, chances are you have student loan debt. The massive $1.3 trillion national student loan debt is still trending upwards, but you can leverage it in your favor. Do you need extra cash to put toward your student loans? Then pay attention and put this in motion next tax season.
Under some specific circumstances, you may be able to save on your tax bill by deducting the interest you pay on your student loans. You can make a total deduction of as much as $2,500 from your taxable income. You don’t even need to itemize to claim this deduction.
Unfortunately, not every loan is eligible for this deduction. Your student loan must have been made to cover qualified education expenses, defined by IRS Publication 970. This would include tuition, fees, and most room and board charges. The loan can’t have come from a relative or employer plan. Also, the educational expenses must be incurred by you or your spouse or your dependent for a qualified educational institution. You also must be enrolled half-time or more as defined by your college. Furthermore, the half-time designation must meet certain Federal Standards. The above linked, IRS Publication 970, will contain more details.
However, you are not eligible if you can be claimed as a dependent on someone else’s taxes. You are also not eligible if your spouse can be claimed if you are filing married, joint.
The Student Loan Interest Deduction is limited based on your modified adjusted gross income (MAGI). The MAGI is your adjusted gross income from your tax form with various subtractions based on which tax form you are submitting. The phase-out period for eligibility begins at $65,000 for single taxpayers and $130,000 for those married and filing jointly. Beyond a MAGI of $80,000 for a single taxpayer or $160,000 for married filing jointly, you cannot claim the Student Loan Interest Deduction at all.
If you paid at least $600 of interest on your student loans you will receive a Form 1098-E from your loan servicer. You can still make your deductions if you paid less than $600. In Publication 970 there is an example of how to do so. Make sure you take advantage of this student loan hack to save yourself some money and pay off your loans sooner.
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What can you do if a tax deduction is not enough?
A tax deduction is great…but what happens when the payment is still a financial struggle each month? Most people don’t realize that there are programs available to help, yet we have assisted thousands of families and individuals lower their payments. Click here to find out what options are available. Our services could help you get back on track.