All week we have been discussing going back to school. Monday’s article was about Coverdell IRAs, Tuesday we discussed Section 529 Plans, Wednesday we dove into the American Opportunity Tax Credit, and Thursday was all about the Lifetime Learning Credit. Today we are going to talk about student loan interest.
Congratulations! You have finished school. You have your degree. You go six months down the road, and guess what? You have to pay that student loan back. The good news is that a portion of the interest that you pay back may be tax deductible.
You may be eligible to deduct up to $2,500.00 of the interest that you paid on student loans on your Federal Income Tax Return. This deduction is not limited to government-sponsored loans, but does not apply to loans made to students by family members.
Generally the right to claim a deduction student loan interest goes to the person that is legally obligated to pay the interest on the qualified student loan. If you are legally obligated to pay the loan, and someone makes a payment of interest on your behalf, you are treated as receiving the payment from the other person and paying the interest. If a parent claims a student as a dependent and the student is legally obligated to make payments on the loan then neither the student nor the parent may deduct the loan interest.
You can deduct student loan interest paid during the remaining period of your student loan as long as it was taken out to pay for qualified education expenses paid or incurred within a reasonable period of time before or after you took out the loan.
The deduction is limited by your total income. If your income is under $60,000.00 (or $120,000.00 for married couples filing a joint return), then you can deduct the interest. If your income is over $60,000.00 but under $75,000.00 ($120,000.00 to $150,000.00 for married people filing jointly), then your deduction for student loan interest is prorated. If your income is over $75,000.00 ($150,000.00 MFJ), then your student loan interest is not deductible.
The bad news is that you have to pay the loan back, but the good news is that it may be tax deductible.
For more information visit www.smalleynco.com
If you have any questions you can email Craig W. Smalley E.A.
Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, and Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle