That means it’s subtracted from your taxable income to save you money. If you qualify for the student loan interest deduction, taking it can be worthwhile. As an above-the-line deduction, it lowers your adjusted gross income. For 2024 these thresholds increase to $95,000 for Single or Head of Household filing and $195,000 Married Filing Jointly filing.
- Payments were paused for more than three years because of the pandemic.
- Divide your annual student loan interest rate by the number of days in the year.
- The amount you see in box 1 reflects your total interest payments for the year.
- You get the full amount of your qualified interest deduction to your AGI since it is above the line and not an itemized deduction, though it can be taken whether you itemize deductions or not.
- Here is what you should know about 1098 forms and where to find them.
The student loan interest deduction is a tax break for college students or parents who took on debt to pay for their school. It allows you to deduct up to $2,500 in interest paid from your taxable income. These loans also have fewer repayment options and higher interest rates than federal student loans. The FAFSA allows you to access various forms of federal aid including federal student loans, work-study, grants and scholarships.
Then continue filling out the rest of your tax return like you normally would. Once you have it, you can use the student loan interest deduction worksheet to determine whether you qualify for the tax break and how much you can claim. Once you know this, you’ll add your deduction amount to the 1040 Schedule 1 form, which is used to determine your AGI. The student loan interest deduction allows eligible student loan borrowers to deduct some or all the amount they paid in interest on their student debt as an adjustment to their income.
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The existence of a fiduciary duty does not prevent the rise of potential conflicts of interest. Janet Berry-Johnson is a CPA who writes about income taxes, small business accounting, form for student loan interest and personal finance. She lives in Omaha, Nebraska, where she enjoys cooking, reading, and spending time outdoors with her husband, son, and their rescue dog, Dexter.
The student loans that do not qualify for the interest waiver are many. They are the Federal Family Education Loans (FFEL) and the Perkins Loans if held commercially by lending institutions. If they are held by the Department of Education, they are also covered.
Dividing the origination fee by the number of years you have to pay off the loan gives you the amount you can treat as student loan interest each year. And if the lender capitalized (increased the principal loan balance) for unpaid accrued interest, you calculate the portion that’s deductible each year in the same way as the origination fee. For the 2023 tax season, this means qualifying borrowers will be able to claim a tax deduction of up to $2,500 a year in interest paid on eligible private or federal education debt. You can take the student loan interest deduction even if you don’t itemize deductions.
Refinancing student loans can reduce your monthly payment and the amount of interest you pay. If you have private loans, use the calculator below to estimate your potential savings. Don’t refinance federal student loans while payments and interest are paused.
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What is a 1098-E Form? – Student Loan Interest Statement
After nearly three years, payments on federal student loans are set to resume in January. If you’re hoping for another reprieve, it’s unlikely that President Joe Biden will extend the payment moratorium past that date. However, there’s a tax deduction that may make repaying your student loans more affordable. To avoid interest capitalization, make interest-only student loan payments while you’re in school before you enter repayment and avoid entering deferment or forbearance. If you’re on an IBR plan for federal student loans, remember to certify your income annually. You can’t claim the student loan interest deduction if your filing status is married filing separately.
What is a 1098-E: Student Loan Interest
In many cases, the loan servicer you pay will send you a 1098-E form. If your MAGI is between $70,000 and $85,000 ($140,000 and $170,000 for joint filers), you can claim a percentage of the student loan interest you paid. In one instance the money was treated like wages and in the second it was treated like a gift to the former student.
You can claim these benefits even if you paid for expenses with student loans. Your income and other factors can help you determine which will save you the most. As with the student loan interest deduction, you must file your taxes jointly if you’re married to be eligible for these tax breaks. Whether you have federal or private student loans, you may be able to take advantage of the student loan interest tax deduction and get more money back in your 2022 tax return. If you don’t receive a student loan interest deduction document, ask your student loan servicer or private lender to send it to you. A copy of the form, as well as details on how much interest you paid, may also be available in your online account portal.
According to the IRS, the deduction starts to phase out for individuals with a modified adjusted gross income above $75,000, and it ends for taxpayers with a MAGI of $90,000 or more. For married couples filing jointly, the phaseout begins at a MAGI of $155,000 and ends at $185,000 or more. Millions of federal student loan borrowers just made payments for the first time in years https://turbo-tax.org/ — or ever. However, relying on ISAs may be worse than using a private student loan, because it’s impossible to know how much you’ll pay over the life of the loan. You may wind up paying a higher total interest amount than if you chose private loans. Once you have your 1098-E form in hand, use the student loan interest deduction form to figure out how much you can claim.