Higher education can often mean higher student loan payments. These payments seem to compound after graduation when you are officially staring down the amount of interest you owe on top of your student loan. Fear not, as it may not be all bad. If you are making these interest payments, you could possibly deduct student loan interest in your next tax return.
Read: 3 Ways Smart People Save Money When Filing Their Taxes
The Maximum for Student Loan Interest Deduction
The maximum student loan interest deduction is $2,500 per year, whether you’re single or married and filing jointly. Plus, if your modified adjusted gross income exceeds the annual limits, you’re not eligible for the full deduction.
Here are the deduction limitations for your specific filing status:
Full deduction if your MAGI is $70,000 or less.
Partial deduction if your MAGI is between $70,000 and $85,000.
No deduction if your MAGI is $85,000 or more.
Full deduction if your MAGI is $145,000 or less.
Partial deduction if your MAGI is between $140,000 and $170,000.
No deduction if your MAGI is $175,000 or more.
You can’t claim the deduction if your status is married and filing separately, regardless of your income.
Qualifying Student Loans
You can deduct the interest you pay during the year on qualifying student loans. Qualifying student loans are those that you took out to pay for higher education expenses for yourself, your spouse or your dependent. The proceeds of the loans must be used to pay for the education costs within a “reasonable” period of time after you took out the loan. You can include interest paid on refinanced or consolidated student loans, but you can’t count loans that were taken from a related person or an employer plan.
Qualified education expenses for the student loan tax deduction include tuition, fees, room and board, books, supplies and equipment. But room and board can’t exceed the amount included in the school’s cost of attendance or, if larger, the amount charged to live in campus housing. Here is a quick breakdown of what qualifies for student loan interest deduction:
Qualified education expenses: If the loan was for tuition, room and board, books or other related expenses you could possibly deduct them.
The loan was for a dependent: If you took out a loan in your own name for someone else like a child or other dependent, you can take the student loan interest deduction.
Making interest payments while in school: If you are making payments while currently still enrolled in school you could be eligible for this deduction.
Claiming the Deduction
If you paid more than $600 in student loan interest during any year, you’ll receive a Form 1098-E documenting the amount you paid. If you qualify for the deduction, you can claim it even if you don’t itemize your deductions and claim the standard tax deduction. And, you can file your taxes with Form 1040.
Final Take: Student Loan Interest Deduction
Student loan debt affects not only recent graduates but also older people either going back to school or paying for college for their children or grandchildren. Even though some loans might qualify for student loan forgiveness after some time, you still have to pay interest on the loans until then.
Besides the student loan interest tax deduction, be sure to research what other education deductions or tax credits the federal government offers for your federal student loans. Whether it is just chipping away at your debt steadily, or completely refinancing, there are always ways to help ease the burden.
Michael Keenan contributed to the reporting for this article.
Information is accurate as of Feb. 2, 2023.
This article originally appeared on GOBankingRates.com: How To Get the Student Loan Interest Deduction