Are you a student? Paying for your education can be taxing, especially if you’ve resorted to student loans. However, you may be eligible to deduct interest you paid on certain student loans. Typically, you are able to deduct either $2,500 or the actual amount of interest you paid, depending on which is less. The deduction phases out gradually, depending on your modified adjusted gross income (MAGI), and can be reduced completely if you reach the annual limit. Because this deduction adjusts your income, you aren’t required to itemize your deductions when you file.
In order to claim the deduction, all of the following five requirements must be met:
- You paid interest on a qualified student loan for the tax year
- You are required by law to pay the interest
- You do not file married, filing separately
- Your MAGI is less than the annual amount limitations
- Neither you nor your spouse, if you file jointly, are not claimed by another taxpayer as a dependent
Generally, a qualified student loan is one which pays for your higher education expenses. There are rules that apply to which expenses qualify.
Your lender should issue you a Form 1098-E, Student Loan Interest Statement, if you paid more than $600 in interest during the tax year. You can claim the deduction by adjusting your income on your Form 1040. There are different requirements for those who file a Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563 Exclusion of Income for Bona Fide Residents of American Samoa, or those who exclude income from sources inside Puerto Rico.