Is your student loan tax deductible? The answer is a qualified yes. For most people you can deduct the interest paid on a student loan. However, there are exceptions that you need to be familiar with.
You may be able to deduct up to $2,500 of the interest paid, which should lower your tax bill. And the good news is, you will not need to itemize your deductions to claim the deduction. You cannot use the 1040EZ Tax Form; you will need to use either the 1040A Form or the 1040 Form.
If you are married, you must file a joint form, you cannot file separately. Also, if you can be claimed as an exemption by anyone else, you are ineligible for the deduction.
To be eligible for the student loan interest deduction, you need to have taken the loan for yourself, your spouse or your dependent. Interestingly, a dependent does not necessarily have to be a relative, but it must be a person who receives most of their support from you.
The IRS also requires that the student be enrolled at least half time in a program that leads to a degree from an eligible educational institution. This includes a college, university or vocational school that meets the student aid program guidelines administered by the U.S. Department of Education.
The interest payments are deductible over the life of the loan, but the loan must be taken out to pay for the educational expense. For example, if you take out a personal loan for something other than your education, you will not be able to deduct the interest payments.
You can deduct the interest from almost any loan that is used specifically for your educational expenses. However, you cannot deduct the interest paid to a relative.
The qualifying expenses for a student loan include tuition and fees, room and board, books, supplies and other expenses. The IRS requires that you be able to identify where and how this money was spent.
As with all things from the IRS, there are qualifying limits for the student loan interest deduction. If you make over a certain income, you will not be allowed to claim the deduction.
For more details check with your tax preparer or IRS Publication 970, Tax Benefits for Education.