Monthly student loan payments can be a frustrating drain on young working people -- and the knowledge that much of each payment is going to pay interest even more so. Fortunately, when tax time comes around, the interest paid on your student loans can be taken as a tax deduction. The Student Loan Interest deduction is taken in the "adjustments to income" section instead of miscellaneous deductions if you file your return on Form 1040 -- meaning that even if you are taking the standard deduction, you can still benefit from this opportunity.
The Student Loan Interest deduction may be taken by a taxpayer who has paid interest on their own student loan, a dependent's student loan, or that of a spouse (if married, filing jointly). The ability to claim the deduction depends upon the taxpayer's modified AGI, with the amount of the deduction being reduced as income increases. For taxpayers who are married, filing jointly, the phase-out begins at a modified AGI of $125,000, and the income limit to claim any amount of deduction is $155,000 (limits rise by $5,000 beginning with the 2014 tax year). For all other non-married filing statuses, phaseout begins at $60,000 and ends at $75,000. Married persons filing separately are not eligible for the student loan interest deduction.
The maximum deduction amount that can be claimed is $2,500 per taxpayer.