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After nearly three years, payments on federal student loans are expected to resume in January. If you’re hoping for another reprieve, President Joe Biden is unlikely to extend the payment moratorium beyond that date. However, there is a tax deduction that can make paying off your student loans more affordable.
Follow along as we explore how the student loan interest tax deduction works, who qualifies, and how to claim it.
Is interest on student loans tax deductible?
The short answer is yes. You can deduct all or part of the interest on your student loan if you meet all of the following conditions:
- You paid interest on an eligible student loan during the tax year. Federal and private student loans may qualify for the deduction, as long as you borrowed the money only to pay eligible higher education expenses for yourself, your spouse, or a dependent who was enrolled at least mid -time in a diploma, certificate or other degree program from a qualifying educational institution.
- You are legally required to pay interest on the loan. You cannot claim a deduction for interest paid on another person’s loan unless you are the signer or co-signer.
- Your filing status for the tax year is not “married filing separately”. Only individuals filing as single, married filing jointly, heads of household, or eligible widow(s) can claim the student loan interest deduction.
- Neither you nor your spouse, if filing jointly, can be claimed as a dependent on another person’s return. You cannot deduct student loan interest payments if your parents or someone else can claim you as a dependant, even if they choose not to claim you for the tax year in question.
You must also meet the income limits to claim the deduction, which we’ll cover shortly.
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How much student loan interest is tax deductible?
You can deduct either $2,500 of student loan interest or the actual amount of loan interest you paid during the year, whichever is less.
If you paid at least $600 in interest on your student loan during the year, your loan officer should send a Form 1098-E showing the amount you paid. If you do not receive a 1098-E, you can still claim the student loan interest deduction. Just call your loan manager or log into your online account to find out how much interest you’ve paid.
Here’s some good news: you don’t have to itemize deductions to claim student loan interest write-offs. That should come as a relief, as it’s now much harder to itemize following the 2017 tax overhaul signed by President Donald Trump.
But student loan interest is an adjustment to income, commonly known as an above-the-line deduction. So you claim it on Schedule 1 of your Form 1040, rather than as an itemized deduction on Schedule A.
There is no separate student loan interest tax form to complete.
How does your income affect the interest deduction on your student loan?
Your deduction can be limited or eliminated entirely if your income is too high, as the student loan interest deduction is phased out for high-income taxpayers.
In this case, income is measured by your Modified Adjusted Gross Income (MAGI), which is usually the same as your Adjusted Gross Income (AGI), but with your student loan deductible interest added. Some less common exclusions and deductions, such as those on income from work abroad and on accommodation abroad, are also returned when calculating your MAGI.
To claim full student loan interest write-off, your MAGI must be less than $70,000 ($140,000 if you are filing a joint return with your spouse). If your income is between $70,000 and $85,000 ($140,000 and $170,000 for joint filers), you qualify for a reduced deduction. If your MAGI is over $85,000 ($170,000 for co-filers), you cannot claim the deduction at all.
To calculate your deduction, you can use the student loan interest deduction worksheet included in the IRS instructions for Form 1040. If you are using some of today’s best tax software to complete your return, the software calculate your deduction for you.
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Frequently Asked Questions (FAQs)
Is it worth reporting student loan interest on your tax return?
If you qualify for the student loan interest deduction, it may be worth it. As a deduction above the line, it reduces your adjusted gross income.
Several other tax breaks are based on or limited by your AGI. For example, you can deduct out-of-pocket medical expenses that exceed 7.5% of your AGI. So, reducing your AGI by claiming the student loan interest deduction may allow you to deduct more of your medical expenses.
The Child and Dependent Credit also has income limits based on your AGI, so claiming the student loan interest deduction can help you get more credit.
Are student loans tax deductible in 2022?
Yes, the interest portion of your student loan payments is tax deductible in 2022. However, you cannot deduct the principal portion of your loan payments (the amount used to pay off your original loan balance).
What is the income limit for the student loan interest deduction in 2022?
You cannot claim the student loan interest deduction if your adjusted adjusted gross income is more than $85,000 ($170,000 if you are filing a joint return with your spouse).
If your MAGI is between $70,000 and $85,000 ($140,000 and $170,000 for co-filers), you can claim a percentage of the student loan interest you paid.
You can claim the full deduction (up to $2,500) if your MAGI is less than $70,000 ($140,000 for co-filers).