Just finished school! Got a loan? Is it tax deductible?
Congratulations, recent college graduates! You’ve finished your last final exam and will finally sleep late during the holidays. The job search—or perhaps grad school—can wait until January.
Unfortunately, not far behind is the repayment of any student loans you took out to fund your education.
If you’re looking for a silver lining from the cash impact of what paying back your loans might do for your lifestyle, look no further than your tax return. That’s because interest paid on student loans may be tax deductible if you were enrolled at least half-time in a degree program.
Is My Student Loan Interest Tax Deductible?
Interest on your student loan may be tax deductible if:
• Your student loan is qualified—basically, that the money was used to pay tuition or very closely related expenses.
• It’s your loan. You signed up for it and you (not Mom, Dad, or Grandma) are obligated to pay it back and your parents are not claiming an exemption for you.
• Your filing status is not married, filing separately.
• Your Modified Adjusted Gross Income (MAGI) is less than $80,000 (or $160,000 if you file jointly with your spouse).
How Much Student Loan Interest Can I Deduct?
Each year, you can deduct up to $2,500 of student loan interest, provided you have paid that much. As a result, new graduates who have not made any payments on their student loans during 2014 will not be able to deduct any student loan interest on their 2014 tax returns due on April 15, 2015. You must pay it to deduct it.
What About the (My) Parents?
Parents can deduct the interest paid on the student loan – instead of the student – if they took out the loan, they are liable to pay it back, and they are claiming the student as a dependent. In such a case, student loan interest is not tax deductible by the student.
Where do I Deduct Student Loan Interest? Do I Have to Itemize to Take Advantage of This Deduction?
The student loan interest deduction is known as a deduction for Adjusted Gross Income (AGI). As a result, you do not need to itemize to take advantage of this deduction.
How Do I Determine How Much Student Loan Interest I Paid?
You can find the total amount you paid in student loan interest on Form 1098-E, which you should receive from your lender by mail in early 2015.
Courtesy - Turbo Tax
Author - Atul Prakash
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