Tax Form 1040 Student Loan Interest

Most interest that you pay throughout the year isn’t tax-deductible. However, for some people, there’s a special deduction they can take for paying interest on a student loan when they file the standard federal income tax form 1040.

This can reduce your income tax by up to $2,500. Keep reading to learn more about who is eligible for this deduction and how you can claim it.

What Type of Student Loan Interest Can You Deduct?

You can deduct interest on student loans you took out for qualified education expenses that include fees, tuition, books, equipment, supplies, room and board, and transportation costs.

Who Is Eligible for Student Loan Interest Deduction?

There are a few requirements you have to meet to determine if you’re eligible for a student loan interest deduction. To take advantage of the deduction, you must check off each of the following:

  • Nobody else can claim you as a dependent on their tax return.
  • You paid interest on a student loan that you took out solely for higher education expenses for that tax year.
  • The student loan is in your name.
  • You’re filing as a single taxpayer or married and filing jointly with your partner.
  • You were enrolled in a degree program at least half-time when you took out the loan.
  • Your modified adjusted gross income (MAGI) is less than $80,000 if you file as a single taxpayer or $160,000 if you file a joint return.

How Do You Claim Your Deduction?

If you meet the criteria, you’re then able to claim your deduction when you file your taxes. To do so, you have to enter certain information about your student loan in tax form 1040, which is the form most people use to file their taxes. If you paid $600 or more in interest on your student loans, your loan provider should send you a form called the 1098-E.

This 1098-E form has all the information you need to fill out tax form 1040 correctly, including how much interest you paid on your student loans in the past year. 

Can You Claim the Deduction if You’re Married?

If you’re married you can still claim the deduction, however, there’s one stipulation. You can only claim a single deduction. Therefore, even if both you and your spouse paid interest on your student loans, you can’t claim a deduction that totals $5,000. 

Instead, you’re only allowed to file a claim up to $2,500. Additionally, it’s important to remember that you can’t get around this stipulation by filing your taxes as married but filing separately. You can only claim the deduction if you file as single or married and filing jointly.

Can You Claim the Deduction for a Dependent?

Typically, the only person who can claim the interest rate deduction is the person who actually paid the interest. Therefore, if the student loan is in your name and you’ve paid the interest, you’re the person who can claim the deduction.

On the other hand, if your parents claim you as a dependent and they took out the loan to pay for your education, they’re the ones who can claim the deduction. However, keep in mind that if someone made an interest payment on your behalfs — such as your employer or someone giving you a gift — you’re still able to claim the deduction.

Can You Claim the Deduction if You Refinanced Your Loan?

If you were looking for ways to save money, it’s possible you refinanced your student loan to get a lower payment. If so, you might be wondering if refinancing your loan changes whether you can claim the student loan interest deduction.

The good news is you can still claim the deduction as long as you only used the loan money to pay for qualified higher education expenses.

How Much Will You Get Back?

How much you get back from the student loan deduction depends on the income you earn and how much you deduct. To give you an idea of what your deduction might be, the IRS offers an online worksheet where you can put in your own numbers.

Although the student loan deduction is only open to people who fall between a certain MAGI, you need to keep in mind that if your MAGI is between $65,000 and $80,000 single or $130,000 and $160,000 joint, your maximum deduction gets reduced. For example, if you’re a couple filing jointly with $145,000 in MAGI, your deduction is $1,250.

If you’re interested in letting your student loan interest help you save some money during tax season, see if you’re eligible for the deduction on tax form 1040.