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?
Student Loan Interest Deduction
Luckily, taxpayers who make student loan payments on a qualified student loan may be able to get some relief if the loan they took out solely paid for higher education.
In many cases, the interest portion of your student loan payments during the tax year is tax-deductible. Your tax deduction is limited to interest up to $2,500, or the amount of interest you actually paid, whichever amount is less. As with most 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 return, or
- You are a single filer with income under $70,000, however, your full deduction phases out (is gradually reduced) between $70,000 and $85,000 ($140,000 and $170,000 married filing jointly). If your income falls above those limits, the student loan interest is not tax-deductible.
The other good news regarding the student loan interest deduction is that you do not need to itemize your deductions in order to claim it. This makes sense considering many recent college graduates are not itemizing tax deductions and instead claim the standard deduction.
If you paid $600 or more 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.
We know times may be hard for students and their families right now due to Coronavirus(COVID-19). Under the recently passed CARES Act, if you are a current or recent student, you may be provided several areas of relief in 2020. Find out, “What Coronavirus Relief Means for College Students and Grads” here.
Don’t worry about knowing these tax benefits. TurboTax has you covered and will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your answers. If you still have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average 15 years experience to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish, year round and can also review, sign, and file your tax return.