Tax Deduction for Student Loan Interest
Tax Deduction for Student Loan Interest
With 2007’s tax returns being sent out, many students are wondering if there was anything else they could have deducted to make that return a little bigger. One important factor that they should have included in their tax return is a deduction in the form of an income adjustment from the interest they paid on any qualifying student loan including stafford loans.
It is not that simple, of course, to just claim any interest owed on loans and take that from the gross income calculation. First the student loan must be determined to qualify, and the expenses it was borrowed to pay must qualify as well. Form 1040 will include instructions on determining qualified expenses.
The limit on these kinds of deductions is a whopping $2,500 for each return filed. This means that the student would deduct up to $2,500 from the amount of income subject to taxation. The loan must be in the student’s name, and used just to pay for the education expenses that qualify on the list from the 1040 form (PDF). The loan cannot come from an employer, or relative. Married students cannot include the interest from student loans if they are filing separately from their spouse, or if the student is not enrolled in a degree program of at least half-time hours.
So basically, any interest a student pays on a loan in their name, specifically for educational expenses, will qualify. If a parent takes out a private loan to cover educational expenses, the student cannon claim the interest paid – even if they are actually the ones making the payment instead of the parents.
Exceptions to the general filing include an individual that is the dependent of another person who is actually also a dependant of a third taxpayer. The individual can be a dependent even if they file a joint return with a spouse. The individual can also be a dependent even if they had an income equal or more than the amount of the deducted interest.
Payments on interest that qualify for tax deductions must have been made while the student was at least half time, and during the school’s academic period. The student must also be enrolled in a matriculating degree or certificate course plan. Students that are enrolled at less than half-time status will not qualify to deduct interest payments, nor will the person they file as a dependent under. Students who are simply taking classes and are not fully accepted into a program do not qualify to deduct interest payments.
As always, if there are questions about your individual circumstances, ask a qualified tax professional. Filing tax returns with incomplete information, or non-qualified claims, take extreme amounts of time and effort to correct. That is time on the filer’s behalf as well as the Federal government. Be sure to read all directions and file carefully. This will make your return a happy experience rather than a stressful struggle. Find more information and resources for student loan tax information.
