What are student loan interest deductions?
These are deductions made from the total amount you owe for your college education (if you took a loan). It is a tax incentive that is especially applicable to individuals who have been paying interest on their student loan repayments. They are the ones who are qualified for this tax incentive. This deduction could be categorized under changes in income and wouldn’t need to be listed out among deductible expenses.
Qualified individuals for this incentive can have as much as $2500 deducted from their student loans annually. Your modified adjusted gross income (MAGI) affects the amount that gets deducted from your student loans. The more your MAGI pushes the limit of your filing status, the lesser the deductions get to be until they are stopped. This is according to the IRS rules.
Process for qualifying for a student loan interest deduction
There are some requirements you must meet to be eligible for these deductions.
They are:
You have a legal directive to pay your student loans with interest.
In the year you’re applying for the interest deductions, you paid interest on your student loan.
As a married individual, you are filing jointly with your spouse
Your MAGI (your annual gross earnings) is within and lesser than the yearly limit for your filing status.
Neither you nor your spouse/partner is claiming dependence on the other's tax return in the case of joint filing status.
What educational expenses are subject to the student loan interest deductions?
Tuition and other administrative and departmental fees
Accommodation
Learning materials such as textbooks, stationeries, instruments and project expenses.
Transportation and living expenses.
What is the process of deducting a student interest loan?
First, there must be proof that the student loan you took was used to cover educational expenses for either yourself or your spouse/partner or a dependent during the period of your study in the institution. Also, the recipient of the loan must be qualified to participate in the disbursement program, as determined by the United States Educational Department.
Students of technical colleges, vocational schools, non-profit or for-profit institutions, or any post-high school institution that is not a public college or university can also apply for these student loans. The individuals themselves are to apply for the loan. It is meant to be embedded in an employer’s benefits package, for example. As a recipient of the loan, it is your responsibility to refund it within a reasonable timeframe. The IRS, however, can be flexible with you with regards to your loan if they see that you are making deliberate efforts to pay it off and are communicative about your financial status.
When repaying your student loan and crossing the threshold of six hundred dollars in interest paid in a tax year, you will be issued a 1098-E IRS Form. This form is used to notify the IRS of the amount you have paid in interest on your student loan.
Can your loan payments be added to your student loan interest deductions?
No, it cannot. The principal payments you make to pay back your student loans are not added to your interest deductions. With student loan interest deductions, only the additional money spent as an interest on your student loan is to be deducted.
In a recent survey made of what it cost to study a four-year course in a public university, the total sum was $10,560 for basic costs. With the addition of accommodation costs, living expenses, resources and study materials, the price hiked up to $26,820. On the other hand, students in private universities, and out-of-state students, had their tuition totaling up to $37,650 and $27,020, respectively. With other additional expenses, college education for these categories of students summed up to an average of $43,280 and $54,880, respectively.
Conclusion:
With the ever-rising costs of college education, one must make the best use of the student loan tax deduction incentive, especially if they are qualified.
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THANKS FOR VISITING.
Jim McClaflin, EA, NTPI Fellow, CTRC