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 funds in some fashion, getting stuck with those student loan payments is almost certainly a fact of life after graduation. Even though you can’t escape the payments, are there any tax breaks that ease the burden of student loans?
Luckily, most taxpayers who make student loan payments on a qualified student loan will get a little relief. This means a loan you took out solely to pay for 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 amount 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 $65,000, however, your full tax deduction phases out (is gradually reduced) between $65,000 and $80,000 ($135,000 and $165,000 married filing jointly). 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 tax 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 that time frame. 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.
Don’t worry about knowing this tax deduction off the top of your head. TurboTax has you covered and will ask you simple questions and give you the tax deductions and credits you’re eligible for based on your answers. If you still have questions at tax-time, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. A TurboTax Live CPA or Enrolled Agent can also review, sign, and file your tax return.