The Student Loan Interest Deduction

Student Loan InterestTaxpayers who are making payments on student loans may qualify to deduct the interest portion of their payments on their federal income tax returns.  According to the IRS, the student loan interest deduction is available to those who meet certain conditions and income restrictions.

Student Loan Interest Tax Deduction Restrictions

To claim student loan interest as a deduction, taxpayers must meet a few requirements regarding their use of student loan funds, their annual income, and their filing status.  For instance, a taxpayer can only claim the interest paid on a student loan that he or she is legally obligated to repay.  If the taxpayer is making loan payments for another individual and he or she is not required to do so, then the interest paid is non-deductible.

Taxpayers who file using the Married Filing Separately filing status are disqualified from deducting their student loan interest.  In addition, those who file jointly but earn more than the annual income threshold may have their deduction amount reduced or eliminated.  This annual income limit is updated each year.  For the tax year 2012, the IRS limited the annual income of single taxpayers to $75,000, while married taxpayers could earn up to $150,000 and still claim a deduction for student loan interest.

Another restriction for the student loan interest deduction is the amount of interest paid in a single tax year.  Taxpayers are only allowed to deduct a certain amount of their student loan interest annually.  This limit is $2,500 per year, regardless of the amount of interest actually paid.

Claiming Student Loan Interest on a Tax Return – Tax Preparation

Unlike many tax deductions, student loan interest is available as an adjustment to income.  This means that taxpayers are not required to itemize their deductions in order to claim their interest payments.  Rather, they can simply list the total interest paid on Line 18 of Form 1040A or Line 33 of Form 1040.  From there, they may subtract the interest from their total income to arrive at their adjusted gross income (“AGI”) for the year.

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