When you’re getting ready to head back to school, there are tons of different types of financial aid available. In addition to the scholarships and grants available, you may even qualify for student loan deductions on your taxes if you paid some interest on a student loan, you are legally required to pay the interest on this loan, and more.
Paying Loan Interest
If you’re paying off your student loans, you’re likely paying interest. Because of this, you may be able to deduct the amount of interest you’ve paid from your taxes. One of the benefits of this is that not only can you get refunded for the number of required payments you’ve made, but additional voluntary pre-paid interest.
When you’re paying interest on student loans, you can make a deduction of either the amount of interest you paid or $2,500, whichever is less. This can be a huge benefit for those going to school when it comes to tax season, especially if you normally anticipate having to pay in a small amount on your tax returns. The deduction available does change eventually and can be phased out entirely as your modified adjusted gross income hits the limit for your status.
Qualifying for the Deduction
There are certain criteria you must meet to apply the deduction for student loan interest payments.
- You must have paid some interest on a student loan that qualifies for the tax deduction in the tax year you are filing for.
- You must also be legally required to pay the interest on this loan. In some cases, you may not have this requirement and therefore not be eligible for the deduction. However, this is a very rare circumstance.
- If you are applying a student loan interest deduction to your taxes, you cannot be filing as married filing separately. You can file as head of household, married, or single, or as a qualifying widow or widower with a dependent child.
- Each year the modified adjusted gross income is set for different filing statuses. To get this deduction, your modified adjusted gross income cannot exceed that year’s pre-determined amount.
- You cannot be claimed as a dependent on someone else’s return. If you are married filing jointly, your spouse also cannot be claimed by anyone else as a dependent.
Keep in mind that all of these criteria must be met. If you don’t meet even one of these, you will not qualify to get the student loan interest deduction on your tax return.
As you’re considering whether you’re eligible for the student loan interest deduction, you also need to consider whether the loan itself is eligible. Eligible loans have been taken out only to pay for higher education for yourself, your spouse, or a dependent. These loans must also pay for an education that was provided during a specific period for a student who has been deemed eligible and is incurred or paid during the time before or after you took out the loan.
While it can be a little confusing to understand all the ins and outs of student loan interest deductions, you have options. Most tax software will run you through the questions to determine eligibility. You can also check with a tax professional or even your financial aid office.