A very common question -” Is student loan interest tax-deductible? ” asked by students or parents who borrow an educational loan. So, this is a quick post with a calculator for calculating the quantum of a tax deduction on a student loan. The good point about student loan interest deduction is that a maximum deduction of $2,500 in student loan interest payments can be claimed regardless of whether you itemize your deductions or take the standard deduction. From a tax savings point of view, borrowers filing a tax return in 2020, can deduct the interest they paid on student loans throughout the previous year, saving up to $625 on their taxes.
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Student loan interest tax deduction calculator
Who is not eligible for the student loan interest deduction?
In the following situations, you can not claim a deduction on account of interest paid on a qualified student loan
- Your (filing status is single, head of household, or qualifying widow) modified adjusted gross income is more than $85,000 and that limit is $170,000 if married and filing a joint return
- Your parent or another relative claims you as a dependent on their own taxes
- You or your spouse are not legally responsible for repaying the loan (you’re making payments on a loan that your child took out in their own name, for example)
- You’re married and filing separate returns
What qualifies for the interest deduction?
Interest paid on a loan borrowed for the sole purpose of paying the qualified educational expenses like -college tuition fees, boarding expenses, text books, and supplies -for you, your spouse, or a dependent while attending Colleges, universities, and vocational schools are eligible schools if they are approved to participate in a student aid program administered by the U.S. Department of Education.
What is a qualified student loan?
The interest you paid during the year on a qualified student loan is allowed tax deduction. So, it is imperative to know if the loan you borrow is a Qualified Student Loan which is a loan you took out solely to pay qualified educational expenses for you, your spouse, or your dependent person when you took out the loan. The said borrowing must be for the education provided during an academic period for an eligible student. Further, educational expenses were incurred within a reasonable period of time before or after you took out the loan.
What is qualified education expense?
The Qualified Educational Expense is defined as the total costs of attending an eligible educational institution. Such cost may include following that may include amounts paid for the following items:
- Tuition and fees.
- Room and boarding expenses as determined by the eligible educational institution.
- Books, supplies, and equipment.
- Transportation expense.
Student loan interest deduction phase-out 2019
If MAGI or modified adjusted gross income of a taxpayer having status other than “married filing jointly, is more than $75,000 but less than $90,000 for tax year 2023, then the maximum educational loan interest deduction of $2.500 will be reduced proportionately. In that case, the formula to compute the tax deduction for educational loans will be as under :
Educational loan interest deduction=(MAGI-75000)*$2500/15000For, taxpayers filing joint returns, the phaseout for the year 2023 begins at $140,000 and is completely over at $170,000. The formula for computing educational interest deduction is
educational loan interest deduction=(MAGI-155000)*$2500/30000In other words, you can deduct the full amount of interest up to $2500 only if you earned below the limit given in the phaseout table below. If you earn more than the amount given in “phase ou ends, you get Zero deduction I
| Tax Filing Status | 2023-Phaseout Begins | 2023 Phaseout Ends |
|---|---|---|
| Single | $77,000 | $90,000 |
| Head of household | $75,000 | $90,000 |
| Qualifying widow(er) | $75,000 | $90,000 |
| Married filing jointly | $155,000 | $185,000 |
How to claim student loan interest deduction?
The most important form to refer to for the amount of your deduction is Form 1098-E. This form is sent to you by the lender only if you have paid more than $600 in interest during the tax year. You should file your tax return within the due date by claiming the deduction of interest shown in the Form 1098-E. If you paid less than $600, you could still qualify for the deduction; ask your student loan servicer to send you the document.
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