Student loans may be considered "good debt" in financial planning circles but there is nothing good about paying hundreds in interest each year. Luckily, you may be eligible for a tax break if you pay interest on your student loans.
Eligibility
You can deduct a maximum of $2,500 for student loan interest. To be eligible:
• You must be legally responsible for payments on a loan used to finance higher education
expenses.
• Your loan must finance your education, your spouse's education, or your child's
education.
• The qualifying student must have be enrolled at least half-time and working towards a
recognized credential at an eligible institution.
If you are married filing separately, or if someone else claims you as a dependent, you are not eligible for the student loan interest deduction.
Tips for Savvy Taxpayer
It's easy to take this deduction if you’re eligible--and it's easy to overlook in the sea of paperwork tax preparation involves.
• Watch your mail. Your lending institution will send you a Form 1098-E if you
paid $600 or more in interest on a student loan. The amount of interest you paid will
be reported on Form 1098-E, box 1. If you do not receive this form, contact the
lending institution.
• Deduct on Form 1040. You can claim the Student Loan Interest Deduction on
Form 1040 Line 33 or on Form 1040A Line 18.
• Know the limits. The maximum amount of student loan interest you can claim
is $2,500. The deduction is also limited by your total income. IRS Publication 970
includes a worksheet to calculate your deduction.
By following these tips it is easy to claim the student loan interest deduction. Doing so can make paying your taxes a little less painful this year.
Sources:
Internal Revenue Service
Federal Student Aid