Student loans have become a tremendous burden for many young adults and parents today. With college costs skyrocketing and little hope to cover tuition without borrowing, getting stuck with those student loan payments is a fact of life after graduation. Even though you can’t escape the payments, are there any tax breaks for student loans?
Luckily, most taxpayers who make student loan payments on a qualified student loan will get a little relief. A qualified student loan is a loan you took out solely to pay higher education.
In most cases, the interest portion of your student loan payments during the tax year is tax deductible. Your deduction is limited to interest up to $2,500 or the amount of interest you actually paid whichever is less. As with most tax credits and deductions, there are limits in place.
You can deduct student loan interest if:
- You paid interest on a qualified student loan in the tax year
- You are legally obligated to pay interest on a qualified student loan
- Your filing status is not married filing separately
- You and your spouse, if filing jointly, cannot be claimed as dependents on someone else’s tax return
- You are a single filer with income under $60,000, however your full tax deduction phases out between $60,000 and $75,000. Income limits are double for joint filers. If your income falls above those limits, it is not deductible at all.
The other good news regarding the student loan interest deduction is that you do not need to itemize deductions in order to claim it. This makes sense considering many recent college graduates are not itemizing deductions.
If you paid more than $600 in interest to a single lender during the year you should receive a 1098-E form showing how much interest you paid for the year. If you made student loan payments but did not receive a 1098-E, you are still entitled to claim the interest deduction, but you may need to call the lender or pull up your records online.
When filing your taxes, don’t forget about this tax deduction and remember that TurboTax will calculate the deduction for you if you are eligible.