How to find out if you qualify for a student loan tax deduction
Student loans can be a significant financial burden, but tax time, you can get some money back as a deduction from your gross income.
The student loan tax deduction allows eligible borrowers to deduct interest they paid off student loans throughout the year, up to a maximum of $ 2,500. Depending on your tax bracket and how much interest you paid, the deduction could save you hundreds of dollars.
If you have private student loans and want to save more on your payments, visit Credible for see if you can lower your interest rate.
Am I eligible for a student loan tax deduction?
Like most tax breaks, the student loan tax deduction is not available to everyone, including some borrowers who are making student loan payments.
To be eligible for the deduction, you must meet the following eligibility criteria:
- You paid interest on a qualifying student loan in the tax year.
- You are legally obligated to pay interest on the loan.
- You are not married and you are filing separately from your spouse.
- Neither you nor your spouse (if you are filing jointly) can be claimed as a dependent on someone else’s tax return.
- Your modified adjusted gross income (MAGI) is less than a certain amount, which is determined annually – for the 2020 tax year it is $ 85,000 if you are filing yourself or $ 170,000 if you are married declaring jointly. The value of the deduction starts to disappear if you earn $ 70,000 or $ 140,000, respectively.
In addition, the loan itself must meet the following criteria:
- It was taken out to pay for eligible graduate costs for you, your spouse, or a dependent when you borrowed money.
- Expenses were incurred for education provided during a school term to an eligible student.
- The expenses were paid or incurred within a reasonable time before or after you took out the loan.
Remember that you can benefit from the student loan tax deduction even if you refinanced your original loans, which can also save you money. Use an online tool like Credible to compare the rates of several lenders at once to find out how much you can save on your private student loans.
How to claim the student loan tax deduction
At the start of tax season, you should receive Form 1098-E from your student loan manager or lender. This document shows the amount of student loan interest you paid in the previous year.
When you begin your tax planning, you include this amount in the calculation of your adjusted gross income, which you will find on Schedule 1 of your income tax return. If you are filing a return with an online tax preparation service, all you have to do is share the interest you paid when prompted.
If you are unsure if you qualify, you can use a Internal Revenue Service tool discover.
Other options if you are not eligible for a student loan tax deduction
Refinancing is one of the best ways to save money as it can get you a lower interest rate on your student loan debt. You can compare student loan refinancing rates without affecting your credit score through an online marketplace like Credible.
Other options include:
- Check if you are eligible for a student loan forgiveness or loan repayment assistance program.
- Manufacturing additional payments on your loans each month.
- Set up automatic student loan payments: Many lenders offer discounts on interest rates for automatic payment.
Take the time to research all of your options, including using a student loan refinance calculator to find out how much you can save.
The bottom line
The student loan interest deduction does not remove your obligation to pay student loans, but it can provide some relief, especially if your balance is high.
When you begin your tax return preparation, make sure you have received the documentation you need to claim the deduction. If you haven’t received Form 1098-E from your student loan manager or lender, you can usually download a copy through your online account.
While you are looking for other ways to save on your private student loans, consider using Credible to get prequalified for student loan refinancing and compare your options to find the best deal.
Have a financial question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert section.