With the cost of college tuition increasing much faster each year than the rate of inflation, more and more students are turning to the various kinds of student loans to help finance their education. Upon graduation, when they start making payments on those loans, some of the loan interest may be tax-deductible, which can help lessen the burden of the loan payments.
Instructions
1. Determine if you are eligible to take the deduction. To be eligible, you must not be married filing separately, and no one else can be claiming you as a dependent. Also, you are legally required to pay the interest on the loan. Paying on student loans for a family member without having your name officially attached to the loan does not count for the deduction.
2. Determine if your income excludes you from taking the deduction. The student-loan interest deduction is eliminated for taxpayers with modified adjusted gross incomes above $145,000 and for individual filers above $70,000. A MAGI above these values disqualifies the taxpayer from taking the deduction.
3. Calculate your eligible student-loan interest. Eligible student-loan interest is interest you are legally obligated to pay (your name is on the loan); the money must have been used only to pay for education expenses, and the loan cannot be from a person you are related to, or from an employer retirement plan like a 401(k) or 403(b). Total up all the interest paid for the year on all such loans. If this amount is less than $2,500, that is the eligible amount. If it is greater than $2,500, only $2,500 is the eligible amount.
4. Determine if you can take the full deduction, or if you must take a reduced deduction. Taxpayers who are married filing jointly get a reduced deduction if their income is above $115,000 (but below $145,000), and single filers get a reduced deduction if their income is over $55,000 (but below $70,000). If your income is below $115,000 for married filing jointly, or below $55,000 filing single, go to Step 7.
5. Calculate your reduced student-loan interest deduction. If you are filing as single, head of household or qualifying widow(er) and your income is between $55,000 and $70,000, your "reduction" is your MAGI minus $55,000, with that amount divided by $15,000. If you are married filing jointly, your "reduction" is your MAGI minus $115,000, with that amount divided by $30,000.
6. Subtract your "reduction" from the amount of your eligible student-loan interest. This amount is your allowed student-loan interest income tax deduction.
7. Enter the amount of your student -oan interest deduction on Form 1040 line 33.
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