What is the Student Loan Interest Deduction?
If you’ve taken out a student loan and are not sure of the benefits the Government provides, one is in the form of reduced taxes called the student loan interest deduction. This deduction is a tax advantage you can claim for your education. The Internal Revenue Service (IRS) has determined that your interest repayment for your schooling may be deducted on your tax return if you qualify. Here is more information on qualifications.
Many Student Loan Programs Are Federal
Students may qualify for a deduction for the following reasons: 1) if you’ve taken out a loan to pay for your education and 2) education is a societal good that pays for itself in the long run. The government wants to help those who have received higher education and not heavily tax them. Education benefits everyone. A well-educated citizen will more than make up for any deduction by paying taxes for his or her entire life.
IRS Qualifications for Deduction
Your education loan interest repayment may qualify for the student loan interest deduction if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) and you might all other criteria. You determine your MAGI on your federal income tax form. These numerical guidelines are always changing, so these figures are just a guide.
Deductions are Different Than Exemptions
You will need to be careful when calculating your deductions and exemptions because they are usually in different places on your tax form. The student loan interest deduction will reduce the amount of income that is taxable. It is called an “adjustment to income.” You don’t need to itemize on Schedule A to claim this deduction.
Details About the Education Deduction
The student loan must have been taken out for the sole purpose of paying for your school expenses. The qualifying student must be you, your spouse or your dependent enrolled for at least half-time in a degree program. Your student loan interest includes either voluntary or required payments.
The federal post-secondary education loan proceeds must be disbursed during a “reasonable period of time” defined as beginning 90 days before the start of the academic period and ending 90 days after the end of the academic period. The academic period is a semester, trimester or quarter determined by an educational institution.
Qualifying education expenses include tuition, fees, room and board, books, supplies, equipment and transportation. The government has guidelines for the maximum amount of room and board each educational institution can charge.
Loans as part of a qualified employer plan do not qualify for this deduction.
Leave a comment