Going to college, or sending your children to college is a big part of the American dream. For many, it is an expectation. Sadly, college tuitions and expenses continue to rise beyond people’s income levels or beyond their savings. This compels many to take out expensive student loans, either for themselves or on their children’s behalf. If you are paying a student loan, you may qualify for some federal tax relief.
The student loan interest deduction provides relief to qualified borrowers for student loan interest paid during the year. This deduction is reported on a taxpayer’s annual tax return and a taxpayer can claim up to a $2,500 for interest paid. The loan must be solely for “qualified” higher education expenses, which include tuition and fees, room and board, books, and expenses related to attending an eligible educational institution. However, to claim a deduction, the loan cannot have been obtained through an employer plan.
The deduction can be claimed if the student was you, your spouse, or your dependent. It can only be claimed by the person actually paying the loan. In determining whether a person qualifies for the deduction, the IRS looks to your Modified Adjusted Gross Income (MAGI), which is your adjusted income that you have calculated on your tax return prior to factoring in a student loan interest deduction. This number is important because to claim the deduction, your MAGI must fall below $80,000 for an individual or $160,000 for joint filers.
To find your student loan interest, look to the 1098-E or other form that you receive from your student loan lender, which allocates the amounts you paid in principal and interest for the tax year.
Other Student Loan Considerations
In addition, your student loan has some other important tax implications. For example, your tax refund may be garnished if you are in default on your student loan, and your student loan agency reports your obligation to the IRS or the Treasury Department. And for Illinois residents, if you are paying off a student loan, you cannot deduct your interest from your state income tax return.
Contact a Tax Attorney
If you need legal assistance with a tax issue or an IRS claim, contact the Law Offices of Robert S. Thomas. For over twenty years, I have helped taxpayers navigate a vast range of tax related dilemmas. I take great pride in offering intelligent, accurate tax advice. I have a Master of Law Degree (LLM) in Taxation, and a license to practice in the United States Tax Court. Contact The Law Offices of Robert S. Thomas at 847-392-5893 to schedule a consultation or visit our website today.