Student Loan Interest Deduction

You may be able to deduct interest you pay on a qualified student loan. If your student loan is canceled, you may not have to include any amount in income. Please see Publication 970, TaxBenefits for Education, for more information if your loan has been canceled.

You do not need to itemize your deductions to claim this deduction.

You cannot claim the deduction if:

1. Another taxpayer claims you as a dependent,
   
   
2. Your filing status is married filing separately, or
   
   
3. You are not legally obligated to make payments on the loan.

A qualified student loan is a loan you took out solely to pay qualified higher education expenses. The expenses must have been:

1. For you, your spouse, or a person who was your dependent when you took out the loan,
   
   
2. Paid or incurred within a reasonable time before or after you took out the loan, and
   
   
3. For education furnished during an academic period when the recipient was an eligible student.

Qualified higher education expenses are the costs of attending an eligible educational institution, including graduate school. The costs of attendance are determined by the eligible educational institution and include tuition and fees, room and board, and an allowance for other necessary expenses.

You must reduce your qualified expenses by the total amount received tax free from the following categories:

1. Employer-provided educational assistance,
   
   
2. Tax free distributions from a Coverdell education savings account,
   
   
3. Tax free distributions from a qualified tuition program (QTP),
   
   
4. U.S. Savings Bond interest that is excluded from income because it is used to pay qualified higher education expenses,
   
   
5. The tax free part of scholarships and fellowships,
   
   
6. Veterans educational assistance, and
   
   
7. Any other nontaxable payments (other than gifts, bequests, or inheritances) received for educational expenses.

The student must have been enrolled in a degree, certificate, or other program leading to a recognized educational credential at an eligible educational institution and must have carried at least one half of a normal full-time workload for the course of study being pursued.

The deduction will start to phase out when modified AGI exceeds certain amounts. Please refer to Publication 970 for these limits.

If you paid $600 or more of interest on a qualified student loan during the year, you will receive a Form 1098-E (PDF), Student Loan Interest Statement, from the institution governmental unit or person to whom you paid the interest.

More information on the student loan interest deduction and other educational benefits is available in Publication 970, Tax Benefits for Education.

What are the limits for deducting interest paid on a student loan?

The maximum deductible interest on a qualified student loan is $2,500 per return. If you are a taxpayer whose return status is married filing jointly, you are entitled to deduct the full $2,500 only if your modified adjusted gross income (MAGI) is $105,000 or less.

For those whose filing status is single, head of household, or qualifying widow(er), the full $2,500 deduction is allowed for MAGI levels equal to or below $50,000.

You are not entitled to the deduction if:

1. Your filing status is married filing separately.
   
   
2. You are claimed as a dependent on another taxpayer's tax return.
   
   
3. If the loan is from a related party or a qualified employer plan.

For more information, refer to Publication 970, Tax Benefits for Education, Chapter 4; Tax Topic 505, Interest Expense; and Tax Topic 513, Educational Expenses.

References:

• Publication 970, Tax Benefits for Education
  
  
• Tax Topic 505, Interest Expense
  
  
• Tax Topic 513, Educational Expenses