Introduction
You may be able to deduct the interest you pay on your student loans. And yes, that’s true even if you’re not currently enrolled in school. But just because you can deduct it doesn’t mean it’s an automatic win. Here’s what you need to know about claiming a student loan interest deduction and how much money you could save by doing so. Are student loans tax deductible?
Student loan interest is tax-deductible.
If you’re an eligible student loan borrower, the interest you pay on your loans may be deductible. The IRS allows taxpayers to deduct up to $2,500 in interest paid during the tax year for qualified education loans. That means if your taxable income is less than $65,000 ($135,000 if married filing jointly), then 100% of your student loan interest can be deducted; if it’s over $65,000 or $135,000 respectively (or if not married), only a portion of that deduction will apply based on your adjusted gross income (AGI).
The IRS requires documentation when claiming this deduction so check out our article How To Claim Student Loan Interest On Your Tax Return to learn more about what the requirements are and how best to file for this deduction.
You may be eligible for the student loan interest deduction.
If you qualify, and if the student loan was taken out to pay for qualified education expenses, you may be eligible for a tax deduction.
The IRS defines a “qualified student loan” as one that was taken out to pay for qualified education expenses. In other words:
- You must be legally obligated to pay the interest on your student loans (e.g., not in default).
- You must make payments in cash—not through a credit card or other method that allows you to avoid paying taxes on interest payments.
- The interest must have been paid during the year in which it is deducted from your taxes (i.e., not accrued but not yet paid). This means if you don’t have enough money at tax time, it won’t count since you didn’t actually pay with cash during that period of time!
Student loan interest deductions are limited.
The Internal Revenue Service (IRS) sets limits on how much student loan interest you can deduct. These limits apply to all taxpayers, regardless of who pays the interest on their student loans.
- The IRS limits the amount of student loan interest that you can deduct for yourself or a dependent. In 2019, this is $2,500 per year for each taxpayer.
- You may not be able to claim an exemption from these limits if your modified adjusted gross income (MAGI) exceeds $155,000 if married filing jointly or $115,000 if single or head of household in 2019. If you have a MAGI above these amounts and file separately from your spouse then there are no applicable phase-out ranges to consider
Claiming a student loan interest deduction is easy.
Student loan interest is a non-itemized deduction, so you can deduct it without itemizing your deductions. And because student loan interest is an above-the-line deduction, you don’t need to itemize it in order to claim it on your taxes.
If you’re married filing jointly and one spouse has student debt, both spouses are eligible for the deduction—but only if they file a joint federal income tax return. It’s not possible to take this deduction separately with each partner claiming their own individual tax returns (if they filed separately).
If you pay any student loan interest, you should consider deducting it from your taxes.
If you pay any student loan interest, you should consider deducting it from your taxes. For example, if your student loans were $10,000 and your taxable income was $50,000 then you could deduct 10% of the $10,000 in interest payments paid during the year ($1,000). This can reduce your taxable income by up to 1/2 of the amount spent on interest payments! This makes it much more affordable for people with modest incomes to go into debt for higher education. If a person has a low-paying job but no other sources of income besides their salary then this can be a great way for them to lower their tax bill.
Conclusion
In conclusion, you’ve learned that student loan interest is tax-deductible and how to claim it on your taxes. We hope this article has been helpful to you and if it was, please share it with others!