Navigating the complexities of student loan interest deductions can be challenging, but understanding the basics can significantly ease the process. This comprehensive guide will walk you through how to deduct student loan interest, explain who qualifies, and offer essential tips for parents and students alike. Whether you’re paying off your own loans, contributing to a spouse’s education, or supporting a dependent, this post will help clarify the rules and maximize your potential deductions.
Can I deduct student loan interest?
Yes, you can deduct student loan interest, assuming some conditions apply, according to the IRS. Borrowers can deduct up to $2,500 per tax year. Sometimes these rules can be a bit confusing, so the IRS even has a quiz for helping you determine if you can deduct your student loan interest.
Tips:
- This applies to interest paid on qualified student loans paid during that tax year, not just federal ones.
- Generally, the expectation is that you were legally obliged to pay that interest.
- Note that you and your parents cannot both deduct this. If you want to get your deduction, you should not be a dependent on someone else’s return.
- Also note that, to qualify, your Modified Adjusted Gross Income (MAGI) should be less than the specific amount set annually by the IRS. For the 2024 tax year, the limit is less than $95,000 for single filers ($195,000 for joint filers).
- If you’re paying your loans while still in school, you can still qualify for the deduction.
Can you deduct student loan interest paid for someone else?
Yes, you can deduct interest on educational loans that you paid for you, for your spouse, or for your dependent (a qualifying child or qualifying relative).
Tips for parents:
- Can parents deduct student loan interest paid for a child? Yes, as long as they are legally obligated to pay the loan, and that they are their dependents. For example, this can create issues if two divorced parents are trying to claim the same dependent at the same time. Learn more about the rules regarding dependents.
- If you’re using your 529 College Savings plan to pay off student loans (ex. this Path2College plan in Georgia), you generally cannot then deduct the interest paid with this money.
- Some parents may decide to withdraw from an IRA for college costs. You will owe federal income tax, but won’t be subjected to the early withdrawal penalty if paying for qualified education expenses. This does not apply to student loans or interest if you are 59½ years old or younger, however. You may want to connect with your accountant or financial advisor if that is your plan.
Do you have to itemize to deduct student loan interest?
No, you don’t need to itemize; this deduction is an adjustment to income.
What is a “qualified student loan”?
A qualified student loan isn’t just a federal loan. The IRS has provided details on how it defines these loans.
- The loan must’ve been taken out for education provided during an academic period for an eligible student.
- You must be legally liable/obligated to pay the interest.
- The interest must’ve been paid or incurred within a “reasonable period of time.”
- It cannot be from a qualified employer plan or from a related person.
- The student must’ve been enrolled at least half-time in a program leading to a recognized educational credential (such as a degree or certificate).
How do I find out what I paid in interest?
This will be on your Form 1098-E, which is issued from the entity if you’ve paid $600 or more in interest. You should also keep this form for your records.
To ensure you’re taking full advantage of the student loan deduction and adhering to all IRS guidelines, it’s wise to seek professional assistance. Connecting with an experienced accountant or tax advisor can provide you with personalized advice, help you maximize your deductions, and ensure compliance with all tax regulations.
