About Student Loan Tax Deductions and Education Credits

Unlike many other deductions, you don’t have to itemize your tax return to take advantage of the student loan interest deduction. If you paid at least $600 in student loan interest, your loan service provider will send you a 1098-E form. If you didn’t pay at least $600, the interest you paid may still be deductible if you’re eligible; ask your loan servicer how much you paid in interest. Because of the pandemic payment pause and 0% interest on federal student loans, many of those borrowers didn’t reach the threshold for receiving the form in 2022. If you paid interest on a higher education student loan in 2022, you might be eligible to deduct up to $2,500 of what you paid, thanks to the Student Loan Interest Deduction.

The Student Loan Interest Deduction is what tax accountants call an “above the line” deduction, meaning you can claim it even if you don’t itemize other deductions. For those, who are ineligible for the Student https://turbo-tax.org/ Loan Interest Deduction or looking for additional ways to reduce their taxable income, there are other alternatives available. Here are three tips to help you secure a student loan interest deduction.

Additional Requirements

Consult an attorney or tax professional regarding your specific situation. To claim the Student Loan Interest Deduction, your MAGI must be $85,000 or less for single filers and $175,000 or less for joint filers in 2022. The deduction phases out for single filers with MAGIs of $70,000 to $85,000 and joint filers with MAGIs of $145,000 to $175,000.

Department of Education has allowed most federal student loan borrowers to pause their monthly bills without interest accruing. As a result, most people with federal student loans haven’t made a payment since, and don’t qualify for the deduction. Fewer borrowers will be able to claim the student loan interest deduction for 2022, with federal loan payments on hold for the duration of the year. To claim the full student loan interest write-off, your MAGI must be below $70,000 ($140,000 if you file a joint return with your spouse). If your income is between $70,000 and $85,000 ($140,000 and $170,000 for joint filers), you’re eligible for a reduced deduction.

What is the 1098-E Student Loan Tax Form?

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Neither those whose filing status is married filing separately nor people whose MAGI is more than a specified amount – which is set annually – are eligible for the scheme. Students and parents can take advantage of tax breaks than can https://turbo-tax.org/how-to-claim-a-student-loan-interest-deduction/ result in thousands of dollars of savings when it comes to tuition fees, books, fees and supplies. Your client might be eligible for both the AOTC and the LLC credits in the same year, but they can only claim one credit per filing.

Is it worth claiming student loan interest on your tax return?

A loan holder’s income and filing status determine the point at which the deduction amount begins to phase out and ultimately become unavailable. Refinancing student loans can reduce your monthly payment and the amount of interest you pay. If you have private loans, use the calculator below to estimate your potential savings. Don’t refinance federal student loans while payments and interest are paused.

The first $2,000 a student spends on these qualified costs provides a $2,000 tax credit, and of the next $2,000 spent on qualified educational expenses, you can receive a 25% tax credit, or $500. For someone who does qualify for the student loan interest tax deduction, they don’t have to itemize deductions. Instead, the deduction works as an adjustment to income and is entered on Form 1040, Schedule 1. To qualify for the student loan interest deduction, the loan that you’ve taken out must also have been used solely to pay for qualified higher education expenses. An above-the-line exclusion from income is also sometimes called an “adjustment to income” and it reduces the adjusted gross income (AGI) on your federal income tax return.

How To Claim the Student Loan Interest Deduction

First, they must have paid interest on qualified student loans during the specific tax year, and that student loan interest must have been a legal obligation for them to pay. You can’t claim the student loan interest deduction if your filing status is married filing separately. You must file taxes jointly if you’re married and want to take this tax break. If you are single, you are eligible for the student loan interest deduction if you file as a single person, head of household or as a qualifying widow(er).

Working with an adviser may come with potential downsides such as payment of fees (which will reduce returns). There are no guarantees that working with an adviser will yield positive returns. The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest. That’s because The American Rescue Plan of 2021 made student loan forgiveness tax-free through 2025 — and the law covers Biden’s forgiveness, too, according to a fact sheet from the White House. Your lender reports your interest payments over a certain amount to the IRS on a tax form called a 1098-E, and should provide you with a copy, too.