Student Loan Interest Tax Deduction
College can be expensive. We apply for financial aid, student loans, grant, and scholarships to make sure that we can attend a four year institution for the full four years. Most college students take out at least one student loan during their college career.
The payments on subsidized student loans are deferred until you complete your education. This includes graduate school if you choose to continue your education after college. But, the time will come when you must begin to make those payments and get a job.
For student loans there are tax benefits for students and/or their parents when it comes to repaying the loans. It is called student loan interest tax reduction and can be claimed on your tax forms. A student or their parents (whoever actually repays the loan) can claim $2,500 tax deduction for interest paid on a student loan in the first sixty months of the repayment.
The deduction can be claimed each year for the first five years of the loan. The purpose of the student loan tax interest reduction is to help with the repayment of student loans. Students may not make a large sum of money when they first get out of school, and loan payments can take a big chunk of the paycheck. A tax deduction lowers the amount of taxable income for the tax-paying former student.
There are qualifications that the student loan has to meet. For a student loan to qualify, it has to have been used for educational expenses. If the loan was not used for these, none of the interest is tax deductible. The loan interest can be claimed even if the tax filer does not itemize deductions.
A student must have attended school at least half time when they secured the loan. The time spent at school has to be leading towards a degree, certificate, or diploma. Just taking classes without a declared major or course of study does not qualify.
Qualified educational expenses include room and board, books, tuition, and fees. Transportation can be included if they are necessary costs related to education. You are not allowed to claim the deduction for someone else who is not a qualified claimant.
The student has to be you, your spouse, or a person who was a dependent of yours at the time they were in school. Even if you took out the loan two years ago, you may claim the deduction for the rest of the five year period on the student loan.
There is also an income requirement. Joint filers who claim the student loan interest reduction will lose their deduction if their income is between $60,000 and $75,000. For a single filer, the income for phase-out is between $40,000 and $55,000.
A student loan is one of the tools used to finance an education. To help repay those loans, the government gives you a break for the first five years. Take advantage of the student loan interest tax deduction.