The student loan interest tax deduction is for students and their parents who are repaying federal student financial aid.It’s the “above the line” adjustment to your adjusted gross income (AGI) if you have paid interest to a qualified loan program during 2023. It can be taken whether you itemize deductions or take the standard deduction. Here’s what you need to know about this deduction, when it can be applied and how to calculate your deduction.
A financial advisor can guideyouas you seek to build out a comprehensive tax plan.
Student Loan Interest Deduction Basics
You get the full amount of your qualified interest deduction to your AGI since it is above the line and not an itemized deduction, though it can be taken whether you itemize deductions or not.The largest amount you can claim for a student loan interest deductible is $2,500 for 2023 (and remains the same in 2024), but that is limited by your income eligibility. You may have paid more interest than that during the year, but that is the limit of your claim.
If you are single, head of household or a qualifying widow(er), your student loan interest phase-out starts at $75,000 modified AGIand the phase-out ends at $90,000. If you are married you can make $150,000 before the phase-out begins. You can earn up to $180,000 which is the level at which the phase-out ends. Those phase-outs change in 2024 to be between $80,000 and $95,000 for single filers and between $165,000 and $195,000 for those who are married and filing jointly.
Keep in mind that the pandemic led to the March 2020 CARES Act, which paused student loan payments, froze interest rates at 0% and stopped debt collection until it expired. That extension ended on June 30, 2023, and payments resumed in October 2023.
The student loans that qualify for the interest waiver during the pandemic are any loans owned by the Department of Education. These are Direct Loans, subsidized and unsubsidized Stafford Loans, Parent and Graduate Plus Loans and consolidation loans.
The student loans that do not qualify for the interest waiver are many. They are the Federal Family Education Loans (FFEL) and the Perkins Loans if held commercially by lending institutions. If they are held by the Department of Education, they are also covered.
The only student loans that qualify for the student loan interest deduction are those that are for the benefit of you, your spouse or your dependent and spent on qualifying education expenses. Private loans or loans from an employee-sponsored plan are not eligible. The loan must be for an academic term and the student must be at least half-time to qualify.
Educational expenses must meet certain qualifications in order to qualify for this deduction. Qualified education expenses can include:
Tuition
Room and board
Books, supplies and equipment
Transportation
Fees
If you are single, you are eligible for the student loan interest deduction if you file as a single person, head of household or as a qualifying widow(er). If you are married, you are eligible if you file a joint return. You are not eligible if you are married, filing separately. You can’t be listed as a dependent on someone else’s return. If your child has completed the loan applications, you aren’t eligible even if you make the payments.
Calculating Your Student Loan Interest Deduction
You get the amount of qualified interest you paid during 2023 from the organizations to whom you owe the interest on Form 1098-E. Depending on your loans, you may receive more than one Form 1098-E. Any lender to whom you paid $600 or more in interest in 2023 is required to send you this form.
You fill in the amount of your student loan interest deduction on Schedule 1, line 20, of the 2023 Internal Revenue Service (IRS) Form 1040. It will be the total of your interest from all your Forms 1098-E. Add that to any other entries from Schedule 1 and total on Line 22. Bring the total from Line 22 over to Form 1040 and complete Line 10A.
The result of this is that the student loan interest deduction will decrease your AGI, which will, in turn, reduce your tax liability.
Bottom Line
The student loan interest deduction is valuable to taxpayers with student loan debt. That’s because it is a deduction written off before your AGI is calculated. You get the benefit of the full deduction to which you are entitled. Individuals who do not itemize their deductions also receive the full benefit of the student loan interest deduction to which they are entitled.
A financial advisor can help you identify all of the right deductions for your own tax situation. Finding a financial advisor doesn’t have to be hard. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Want to see what you could owe this year? Use SmartAsset’s free income tax calculator.
For 2023, the amount of your student loan interest deduction is gradually reduced (phased out) if your MAGI is between $75,000 and $90,000 ($155,000 and $185,000 if you file a joint return). You can't claim the deduction if your MAGI is $90,000 or more ($185,000 or more if you file a joint return). See chapter 4.
Important note: As part of the Fresh Start Program, borrowers with eligible defaulted loans are receiving certain relief measures, including tax refunds (and child tax credits) not being withheld. This relief will continue through at least September 2024.
Collection activities are currently paused for all federal student loans through September 2024, which should protect your 2022 and 2023 federal and state tax refunds.
You can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you are deducting mortgage interest from indebtedness incurred before December 16, 2017.
The student loan interest deduction allows borrowers to deduct up to $2,500 of the interest paid on a loan for higher education directly on Form 1040. Eligibility for the deduction includes an individual's filing status and income level.
Key takeaways. Paying off student loans early can benefit you financially, but it should typically come second to building your emergency fund and retirement savings. People with private student loans or without other debt tend to benefit more from paying off student loans early.
For 2024, these phaseout ranges increased to between $80,000 and $95,000 for those filing as Single and $165,000 and $195,000 for those filing as Married Filing Jointly.
For tax year 2024, the standard deduction for married couples filing jointly rises to $29,200, an increase of $1,500 from 2023. For single taxpayers, the standard deduction rose to $14,600, a $750 increase from the previous year.
Though the 37-month COVID-19 payment pause ended Oct. 1, 2023, the U.S. Department of Education will delay tax refund offsets until at least September 2024. If you've defaulted on student loans, though, you'll need to enroll in the Fresh Start Program before Sept. 30, 2024, to avoid future refund offsets.
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
The maximum refundable child tax credit amount was capped at $1,600 per dependent for this past filing season. In tax years 2024 and 2025, the refundable amount would grow to $1,900 and $2,000.
If you made federal student loan payments in 2023, you may be eligible to deduct a portion of the interest paid on your 2023 federal tax return. This is known as a student loan interest deduction.
During the COVID-19 pandemic, the government paused student loan collections on all federal loans, including tax refund offsets. That pause ended in September 2023. However, the U.S. Department of Education said it will postpone tax refund offsets until at least September 2024.
At the end of each year, your servicer will send you Form 1098-E by mail or electronically. This form details how much interest you have paid on your student loan during the year. You can deduct up to $2,500 in annual interest on your tax return, subject to income limitations and other restrictions.
The 2023 standard deduction was $13,850 for single filers and those married filing separately, $27,700 for those married filing jointly, and $20,800 for heads of household. These amounts apply to tax returns that were due April 15, 2024.
You can deduct the interest you paid on the first $750,000 of your mortgage during the relevant tax year. For married couples filing separately, that limit is $375,000, according to the Internal Revenue Service. If you took out your mortgage between Oct. 13, 1987, and Dec.
After an inflation adjustment, the 2023 standard deduction increases to $13,850 for single filers and married couples filing separately and to $20,800 for single heads of household, who are generally unmarried with one or more dependents.
The amount of your credit for 2023 is gradually phased out if your Modified Adjusted Gross Income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if you file a joint return). You cannot claim a credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint return).
True. Julia can take a student loan interest deduction of $3,250. This deduction allows individuals to deduct the interest paid on qualified student loans, subject to certain income limitations. As Julia is paying off her student loan from 2017, she is eligible for this deduction.
You can claim interest on a qualified student loan you took out for your dependent as long you meet both of these:The loan was in your name.You paid the interest on it.
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