Tax Break on Student Loans

Posted By: Dr. Frugal in Taxes on 08/15/2007 at 13:52:51

Up to $2500 in interest on some student loans (Stafford, PLUS, Perkins, Consolidation, and private) may be tax deductible if certain criteria are met. The proceeds of the loan must have been used for qualified higher education expenses (tuition, fees, room and board, supplies, and other related expenses), and you must have been enrolled at least half-time in a qualified program at an eligible institution.

As of 2002, the rule that you could deduct interest for the first sixty months of your loan has been eliminated. You can now deduct interest no matter how long you've had the loan. Also beginning in 2002, the income limits have been increased. Deductibility phases out if your income is between $50 and $65k for single taxpayers and $100-$130k for couples filing jointly.

If you paid more than $600 in interest on your student loans during the year, your lender will send you a Form 1098-E showing the amount paid. To claim the amount on your income taxes, you must file Form 1040 or 1040A, but unlike the mortgage interest deduction, you don't have to itemize in order to get the deduction. If you're married, you have to file jointly.

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