Can You Deduct Interest From Student Loan Payments On Your Tax Return?
Student debt is becoming a major economic and political problem. As the cost of universities rise, young people may find themselves piled under a mountain of debt, and many realize the difficulty of following sound budget practices after they graduate from college. While some move back in with their parents or move to studio apartments, the poor economy can make it difficult for many borrowers to afford their monthly student loan payments. Although thousands of young people file bankruptcy each year to escape the financial burdens they are facing, doing so will not forgive most student loans.
Fortunately, the federal government does recognize that student debt has become a problem, and the Internal Revenue Service currently offers a student loan interest deduction to help alleviate some of the financial pressure with which many new college graduates struggle. The tax deduction may reduce the amount of taxable income of some student borrows, and unlike a traditional tax credit, it will not reduce the total tax burden of the filer. Still, if you are facing mounting loans, this tax deduction may help you to get back on your feet.
Depending on the amount of your student loans, you could be entitled to claim the student loan interest deduction on each tax return until your loans are satisfied. However, you will need to meet several qualifications in order to do so. First, your earned income must have been $74,000 or less during the deduction year, and if you earned between $60,000 and $74,000, you will be required to prorate the deduction according to the IRS’s sliding scale. On the other hand, if your earned income is less than $60,000, you will be entitled to the full amount so long as you meet other qualifying criteria.
If you are married, you must submit your tax return under the “Married Filing Jointly” status; the “Married Filing Separately” status is not approved for this tax credit. In addition, if both you and your spouse have student loans, you can combine the total interest you paid as long as your combined income for the year was less than $120,000. A prorated portion will be available if your combined income was between $120,000 and $150,000. Keep in mind that you cannot deduct the full amount that you have been paying on your student loans; you are only legally entitled to claim the interest you paid on that particular student loan and only in that particular tax year.