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Student Loan Interest Deduction

Interest paid on a student loan may be tax deductible

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Student loan interest is a tax deduction found in the adjustments to income section of Form 1040 or 1040A. That means you can take this deduction in addition to any itemized deductions or if you take the standard deduction.

You can also deduct interest on student loans paid into by yourself, by your spouse (if you file jointly), and for your dependents.

There are also income limitations for being able to claim the deduction.

Reporting Student Loan Interest

Your lender will send you a Form 1098-E. The amount of interest you paid on your student loans for the year will be reported on Form 1098-E, box 1.

Limits

The maximum amount of student loan interest you can claim as a tax deduction is limited to $2,500.

Income Limitations and Phase-outs

The deduction is also limited by your income. The deduction for student loan interest is reduced for taxpayers who have modified adjusted gross income in the phase-out range.

For 2014, the phase-out ranges are:

Filing Status Phaseout Begins Phaseout Ends
Married Filing Jointly 130,000 160,000
Qualifying Widow(er) 65,000 80,000
Head of Household 65,000 80,000
Single 65,000 80,000
Married Filing Separately N/A N/A

 

For 2012 and 2013, the phase-out ranges are:

Filing Status Phaseout Begins Phaseout Ends
Married Filing Jointly 125,000 155,000
Qualifying Widow(er) 60,000 75,000
Head of Household 60,000 75,000
Single 60,000 75,000
Married Filing Separately N/A N/A

 

If your modified adjusted gross income is under the threshold where the phaseout begins, then you can deduct up to $2,500 in student loan interest.

If your modified adjusted gross income falls within the phaseout range, then your deduction for student loan interest will be prorated.

The IRS explains how to calculate the reduced student loan interest deduction using the 2013 phaseout amounts:

"If your MAGI [modified adjusted gross income] is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). The denominator is $15,000 ($30,000 in the case of a joint return). Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct" (from Publication 970, chapter 4).

If your income is more than the threshold where the phaseout ends, then your student loan interest is not deductible at all.

Married persons filing separately are not eligible for the student loan interest deduction.

Modified adjusted gross income for the purpose of calculating the student loan interest deduction means adjusted gross income without taking into account any deductions for student loan interest, for tuition and fees, or for domestic production activity; and by adding back any of the following exclusions: the foreign earned income exclusion, the foreign housing exclusion, the foreign housing deduction, and the income exclusions for residents of American Samoa or Puerto Rico.

To calculate the deductible portion of your student loan interest, you can use the worksheet found in Publication 970, chapter 4.

Tax Laws Relating to the Student Loan Interest Deduction

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