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Are Student Loans Tax Deductible?

By The Chandler & Knowles Team | | 0

With all of the new tax laws, many people are wondering if the student loan tax deduction has been taken away with the new Tax Cuts and Jobs Act.  The exclusion was included in the original version of the law changes but, fortunately, was later removed. Student loan interest deductions come directly off of your adjusted gross income, thus lowering your tax bracket. The deduction can be as much as $2,500.

Who Is Eligible?

The deduction is available to anyone paying interest on student loans. There are some exceptions you should be aware of: 

  • The student must be enrolled at least half-time in a degree, certificate or approved educational program.
  • Post-secondary education qualified expenses include tuition, fees, books, computer software, supplies, and equipment required for classes. Excluded are health insurance, transportation, or living expenses.
  • You cannot claim the deduction if the loan is in his/her name. 
  • Any individual who files as married filing separately is unable to claim the deduction. Required filing status is single, married filing jointly, head of household or qualifying widow(er).
  • There are income restrictions. The adjusted gross income limit for married filing jointly is over $170,000 and for all others $70,000. There are income brackets where the deduction is gradually phased out between $70,000 and $85,000 ($140,000 and $170,000 if you file a joint return).
  • An individual (or spouse) claiming the deduction cannot be claimed on anyone else's tax return.
  • The loan must be obtained as a qualified student loan. Money borrowed from employers, friends, or family do not qualify.
  • For each loan that you pay at least $600 interest, you should receive a 1098-E. The interest paid is printed in Box 1 of this form.

How Do I Claim The Deduction?

Claiming the deduction is easy. It is part of the 1040 form and comes off of the adjusted gross income (AGI). Some items to consider are:

  • If a student has a loan in their name but the parents make the payments, the student is eligible to count the interest deduction. However, this is contingent on who is claiming the student. If the parents are eligible to claim the student, no one will get the deduction. If the student claims himself, he is able to use the deduction. 
  • Because the deduction is taken from the AGI, you do not have to itemize in order to claim it.
  • Deduction cannot exceed the $2500 ceiling.

There are several other post-secondary related tax benefits available for students and their parents. You won't want to miss out on the deductions or credits for which you are eligible as they can make a big difference in your tax refund or bill. With the recent changes, many people will benefit from choosing to use a professional accountant to complete their tax return. Chandler & Knowles CPAs is prepared to assist you with your student loan interest deduction as well as all your tax needs. Call us today to schedule an appointment: (817) 993-6349.

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Posted in college, College Planning, student loan, tax planning, tax deductions, deductions

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