Student Loan Interest Deduction Definition and How to Claim It

Notice that the deduction is only for “qualified” student loans. According to the IRS, a qualified student loan is a loan taken out solely for “qualified” higher education expenses for you, your spouse, or your dependent. This loan must also be for the education of an “eligible” student. If you are single, you are eligible for the Student Loan Interest Deduction if you file as a single person, head of household or as a qualifying widow.

It doesn’t matter whether you took out a loan from a US bank or a foreign bank. Currently, the most you can deduct is $2,500 in interest. The deduction starts phasing out when your Modified Adjusted Income reaches $55,000 ($110,000 for married filing jointly). At Keeper, we’re on a mission to help people overcome the complexity of taxes. That sometimes leads us to generalize in our educational content. Moreover, you must have paid or incurred these qualified expenses within a reasonable amount of time before or after you’ve taken out the loan.

What is the income limit for the student loan interest deduction in 2022?

MYRA Advisors LLC (“MYRA Advisors”) is a wholly owned subsidiary of MYRA Inc. (“MYRA”). Investment management and advisory services are provided by MYRA Advisors, an SEC registered investment adviser. You must use the loan to pay for higher education expenses for yourself, your spouse, or your dependent . You can deduct interest that you are required to pay AND interest payments that you make voluntarily. We know every form you need and every deduction you can take to pay less this year. To claim the deduction, you will simply input the amount of interest paid during the tax year on Form 1040, Schedule 1. You’ll find a line called “Student Loan Interest Deduction” under the “Adjustments to Income” section.

• I realize most college students get a bad rap for ordering too much delivery pizza or taking on crippling credit card debt.
• Unlike most other deductions, the student loan interest deduction is claimed as an adjustment to income on Form 1040.
• The result of this is that the student loan interest deduction will decrease your AGI, which will, in turn, reduce your tax liability.
• The Income Tax Course consists of 62 hours of instruction at the federal level, 68 hours of instruction in Maryland, 80 hours of instruction in California, and 81 hours of instruction in Oregon.
• An ITIN is an identification number issued by the U.S. government for tax reporting only.

You may need this document to deduct eligible interest on your federal income tax. Joint tax filers with an MAGI of $175,000 or more could not claim the deduction. You can’t deduct the interest for contributions to your child’s student loan since it’s not in your name.

Do both private and federal student loans qualify for the student loan interest deduction?

The funds from the loan were paid out within a “reasonable” time period. Your student loans must go toward school-related expenses during the academic year, such as tuition, books, transportation, and room and board. If you qualify for the https://turbo-tax.org/, taking it can be worthwhile. As an above-the-line deduction, it lowers your adjusted gross income. To calculate your deduction, you can use the student loan interest deduction worksheet included in the IRS instructions for Form 1040. If you use some of today’s best tax software to complete your return, the software will calculate your deduction for you.

You shouldn’t face any penalties if you apply the funds to qualified education costs. And if you or your child decides not to attend college, you have the option to switch beneficiaries. You can deduct up to $2,500 in student loan interest if your MAGI is under the threshold where the phaseout begins. Your limit is prorated if your MAGI falls within the phaseout range—for example, $70,000 to $85,000 if you’re single. Depending on your tax bracket and how much interest you paid, the deduction could be worth up to $550 a year, Kantrowitz said. The best way to determine if you have potential interest to claim is to contact your loan servicer, said Betsy Mayotte, president of The Institute of Student Loan Advisors. We believe everyone should be able to make financial decisions with confidence.