Q: Can I take a deduction for interest I pay on my student loan?
Sandy, Addairsville GA
A: Yes, Sandy, you can--assuming your income is low enough and the student loan is qualified. In general, you cannot deduct more than $2500 in student loan interest, and cannot deduct any if your AGI is more than $70,000 ($145,000 that for married filing jointly taxpayers). Also, not every loan for college is a "qualified student loan"...
For more information on the student loan interest deduction (technically, an adjustment) see IRS Publication 969, Tax Benefits for Education.
Maximum student loan interest that can be deducted: $2500 (all filing statuses)
AGI limit: $70,000 ($145,000 in the case of a MFJ taxpayer)
AGI phaseout of deduction: $55,000-$70,000 ($115,000-$145,000 MFJ, $0 MFS and dependents)
Qualified Student Loan
A loan used solely to pay for qualified education expenses (tuition, fees, room, board, books, supplies, equipment, other necessary expenses) for you, your spouse, or a dependent at the time is "qualified." The expenses must be paid from the loan for a reasonable period of time (generally, 90 days). The loan must be for a course of study in an academic period (semester, quarter, etc.)
The loan interest is not deductible if it came from a related person (a relative or a close business), or a qualified employer plan.
There is no double-dipping on qualified education expenses. Other sources of funding for them (employer-provided assistance, Coverdell ESA and 529 plan contributions, etc.) reduce their amount for student loan interest purposes.
Only the person legally-liable to pay the loan can deduct the interest.
As stated above, the ability to take an adjustment for student loan interest phases out when modified adjusted gross income exceeds $55,000 ($115,000 MFJ), and disappears completely when MAGI hits $70,000 ($145,000 MFJ).
Modified adjusted gross income (MAGI) in this case means AGI plus:
- the student loan interest deduction
- the tuition and fees deduction
- the domestic production activities deduction
- any foreign earned income that has been excluded
- any foreign housing that has been excluded
- any foreign housing that has been deducted
- any exclusions of income for bona fide residents of Puerto Rico and American Samoa
The amount of student loan interest is reduced ratably throughout the phaseout window. For instance, a head of household with $800 of student loan interest and MAGI of $62,500 would only be able to deduct $400, since she is halfway through the phaseout window.