Even though no one loves paying debt, especially student loans, there are some advantages. In other words, one might be qualified for a student loan interest deduction that is worth up to $2,500 for your taxes. While this deduction can provide some financial net, it is essential to know the working principle of such before claiming it.
This article will explore several facts to keep in mind about claiming the student interest deduction:
Not all loans qualify for student loan Interest deduction
You need to meet conditions for eligibility for the student loan interest deduction. Based on Uncle Sam’s regulation, the loan is tax deductible provided:
You, your spouse, or someone who is your dependent took the student loan when borrowed. This deduction applies to both private and federal loans.
The loan took care of educational expenses in an academic year. One can deduct interest only provided the loan took care of the costs related to school like a board, room, tuition, etc. You would reduce your deduction if you had expenses not associated with your studies, like purchasing a vehicle while in school.
Legally, you need to pay all your interest on the student loan.
With Student loan Interest Deduction, you can deduct up to $2500
As long as you meet all the eligibility criteria, the maximum interest amount deductible each year is $2,500. Paying way above this disqualifies you from deducting the extra interest.
It is not a credit but a deduction. In other words, you will subtract the deductible interest amount from the taxable income. For instance, for someone who had had $25,000 in taxable income the previous year and paid the entire $2,500 for deductible student loan interest, such a person's deduction will come down to $22,500.
Itemizing is not compulsory for Deduction of Student loan Interest
Since deduction for interest loans is an above-the-line tax deduction, it directly brings down the adjusted gross income. Your adjusted gross income comes down when you enter the deductible interest amount.
The ability to claim the deduction without itemizing is a considerable benefit. As a result, you can go ahead and use the standard deduction approach if it makes sense without worrying about missing the deduction.
Such Deductions can save you some money.
The exact deduction amount you will get is a matter of your tax bracket; as a result, such deduction changes with the tax bracket. A shortcut to estimate the value of your deduction is to multiply the deductible interest by the tax bracket.
Your deduction brings down the income amount taxed at the highest marginal rate. As a result, the calculation is dependable. The idea is that when you take such a deduction, not much of your income will be taxed at a higher rate.
Income Limit Exists
As income rises, the student loan interest deduction phases out, which disqualifies you from the deduction since you make a lot of money.
A single filer that makes above $85,000 every year doesn’t qualify for the interest deduction.
Married and joint filers also do not qualify for the deduction.
Some Tax Filing Categories don't Qualify.
Dependents or people filing as married and separate do not qualify. One needs to meet a couple of eligibility criteria alongside fulfilling other requirements to prepare:
You cannot be a dependent on anyone's tax return
Your taxes must not be filed as married and separate
People in this category can do nothing about the deduction; they will not get it.
You will get a Form from your Student Loan Servicer.
There is no need to worry about keeping tabs on your interest for the entire year for people who want to claim the interest deduction on a student loan. You will likely get a 1098-E form from the loan servicer, which will reveal the whole interest amount paid.
All you need is the info from the box that reveals the entire student loan interests the lender received, and input this figure on your taxes. You will also provide this information for people who use an online program. With this, claiming your student loan interest deduction will be easy.
FOR MORE INFORMATION ON HOW PAT RASKOB CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.
THANKS FOR VISITING.
