Tax Form 1098-E: How to Write Off Interest on Your Student Loan

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If you pay off your student loan debt, you know your total monthly payments are a combination of principal and interest. But did you know that by filling out and filling out Form 1098-E, you may be able to deduct your student loan interest against your taxes?

However, the possibility of deducting interest from student loans is not automatic; you must meet certain qualifications. Here’s what you need to know about the form and if you might be eligible for a student loan interest deduction.

6 questions about the 1098-E, answers

Now is your chance to fill one and take advantage of some potential tax breaks for student loans. Here are some key questions about the 1098-E:

1. What exactly is Form 1098-E?
2. How do I qualify for the student loan interest deduction?
3. What are the income conditions for the interest deduction on student loans?
4. What is the total amount of student loan interest that I can deduct?
5. Do I have to itemize to get the student loan interest deduction?
6. How do you calculate interest deductions on student loans?

1. What exactly is Form 1098-E?

Officially known as the Student Loan Interest Statement, Form 1098-E is a tax form that all of your student lenders must send to you if you paid $ 600 or more in interest in the tax year. . The form lists all of the interest included in your loan payments throughout the tax year. This form helps eligible borrowers claim a partial or full deduction on interest paid when filing income tax. To do this, enter the authorized amount in your main tax form, 1040.

Keep in mind that just because you receive a 1098-E doesn’t automatically qualify you for the deduction.

2. How do I qualify for the student loan interest deduction?

The first step in understanding if you might qualify for an interest deduction is to review this list of qualifications from the IRS. You must meet them all, not just one or two, in order to potentially qualify. Note that eligible loans include both federal loans and private loans used to pay education costs for yourself, a dependent or a spouse.

One thing that is important to note is that only the person who is legally obligated to repay the loan can claim the deduction. So if mom or dad made payments for you, but your loans are in your name, only you can claim the deduction. However, if they declare you dependent, you will not be able to benefit from tax relief, even if the loan is in your name.

  • You paid interest on a qualifying student loan in the tax year for which you are filing your return.
  • You are legally obligated to pay interest on a qualifying student loan
  • Your filing status is not “married filing separately”.
  • Your Modified Adjusted Gross Income (MAGI) is less than a specified amount, which is set annually (more details below).
  • You or your spouse, if you are filing jointly, cannot be claimed as dependents on someone else’s return.

3. What are the income conditions for the interest deduction on student loans?

To be eligible for the full interest deduction on your taxes for the 2019 tax year, your MAGI must be less than $ 70,000 as a single filer ($ 140,000 for couples filing jointly). For income over $ 70,000, the amount you can deduct will be phased out, meaning you can still deduct interest, but at a lesser amount. Once your MAGI is $ 85,000 as a single filer, or $ 170,000 for couples filing jointly, you are no longer eligible to deduct student loan interest on your taxes.

Your filing status The phasing out of the deduction begins with a MAGI of: Not eligible for a student loan interest deduction if you have a MAGI of:
Single, head of family, eligible widower $ 70,000 $ 85,000
Married spouse filing $ 140,000 $ 170,000
Separate marriage deposit Not eligible Not eligible

4. What is the total amount of student loan interest that I can deduct?

If you are eligible for deducting interest on student loans, interest paid is deductible for the lesser of $ 2,500 or the interest you actually paid in the tax year for which you are filing.

5. Do I have to itemize to get the student loan interest deduction?

No. Since the interest deduction is simply an adjustment to your modified gross income, or an “over the line” deduction, it does not need to be itemized on your taxes.

6. How do you calculate interest deductions on student loans?

While you can claim up to $ 2,500 in student loan deduction, the actual amount saved on your taxes won’t be that great. The deduction is calculated based on the amount of interest you paid in the past year, as well as your income and your tax bracket. The maximum amount it can reduce your tax bill is $ 550 per year, as the benefit gradually moves into the 22% tax bracket. Filers with higher incomes (MAGI greater than $ 50,000) tend to benefit the most from the deduction.

You can use our Student Loan Interest Deduction Calculator to calculate the tax savings you can achieve by deducting student loan interest, based on your particular situation. For example, if you are a single filer with a MAGI of $ 60,000 who paid $ 2,000 in student loan interest in 2019, you can expect a repayment increase of $ 500, according to our calculator, as long as you meet all other conditions to deduct student loan interest.

How to read Form 1098-E

There are two boxes on Form 1098-E that you will use to complete your income tax return: Box 1 and Box 2.

Box 1 is the summary of your student loan interest; this is the total amount you paid in interest in the tax year. (Remember: Box 1 only lists interest paid, not your total loan payments.)

Box 1 may also list loan origination fees or capitalized interest, if you took out your loan on or after September 1, 2004.

For any loan opened before September 1, 2004, you may be eligible to deduct these origination costs or capitalized interest. These will not be reported in box 1, but you will see a check mark in box 2. Otherwise, it will likely be blank.

You can go here to see a sample form 1098-E.

Once you have received the form, it is your responsibility to include this information when you file your taxes.

Other information you should know about student loans and taxes

Here are some additional cases that may concern you:

1. You should still be able to deduct student loan interest if you refinance
2. You must always include an employer’s student loan assistance for 2019
3. You may be eligible for education tax credits
4. You may have to pay taxes if you get a student loan forgiveness

1. You should still be able to deduct student loan interest if you refinance

If you choose to refinance your student loans, the interest on your student loan is likely still eligible for tax deductions. However, if you refinance more than the original value of your student loans and use the additional amount for purposes other than qualifying education costs, you will not be able to deduct any interest paid on the loan.

2. You must always include an employer’s student loan assistance for 2019

The CARES Act, a US government response to the COVID-19 pandemic, allows employers to make tax-free student loan payments of up to $ 5,250 per employee, for the remainder of 2020. It can help when you file your 2020 taxes, if you have an employer who participates in this program. For your 2019 taxes filed in 2020, if you received student loan repayment assistance from an employer, the money may be considered taxable income.

3. You may be eligible for education tax credits

If you are still enrolled in school, you may be eligible for an education tax credit, which is different from a student loan tax deduction. With a tax credit, you can reduce your tax bill by the exact amount to which you are entitled. One of the main education tax credits available is the American Opportunity Tax Credit, which allows you to potentially reduce the amount you owe in taxes up to $ 2,500, based on your eligible educational expenses in the tax year. You may also be eligible for the Lifetime Learning Credit, which you can claim for up to $ 2,000 in tuition and fees spent. You can claim one or the other, but not both at the same time.

4. You may have to pay taxes if you get a student loan forgiveness

Participate in a An income-driven student loan cancellation program can be a serious way to save money. However, you should be aware that you could owe a hefty tax bill once the loan is canceled. This is because this canceled debt can be considered income by the IRS. Talk to your accountant about how best to deal with this and other issues so you don’t end up with an unexpected nasty tax surprise.

How to use your tax refund

Understanding the student loan tax breaks you may be eligible for can save you a lot of money at the end of tax season. Consider the above information and work with a tax professional to determine your eligibility and how to maximize these potential benefits.

If you’re lucky enough to get a refund from the IRS this year, consider spending some or all of it on additional student loan payments. This way, you can pay off your loans faster and direct your future savings to your main life goals. Here is our guide to speed up your student loan repayment with your tax refund.

Rebecca Stropoli contributed to this report


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