Student Loan Interest Is Tax-Deductible: But Who Can Claim?

Student Loan Interest Is Tax Deductible: But Who Can Claim?

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.

Follow along as we explore how the student loan interest tax deduction works, who qualifies and how to claim it.

Is Student Loan Interest Tax-Deductible?

The short answer is yes. You can deduct all or a portion of your student loan interest if you meet all of the following requirements:

  • You paid interest on a qualified student loan during the tax year. Both federal and private student loans can qualify for the deduction, as long as you borrowed the money solely to pay eligible higher education expenses for yourself, your spouse or a dependent who was enrolled at least half time in a program leading to a degree, certificate or other credential from an eligible educational institution.
  • You’re legally obligated to pay interest on the loan. You can’t claim a deduction for interest paid on another person’s loan unless you’re the signer or co-signer.
  • Your filing status for the tax year isn’t “married filing separately.” Only people filing as single, married filing jointly, head of household or qualifying widow(er) can claim the student loan interest deduction.
  • Neither you nor your spouse, if you file jointly, can be claimed as a dependent on another person’s return. You can’t deduct student loan interest payments if your parents or another person can claim you as a dependent—even if they choose not to claim you for the tax year in question.

You also must meet income limits to claim the deduction, which we’ll get into shortly.

How Much Student Loan Interest Is Tax-Deductible?

You can deduct either $2,500 in student loan interest or the actual amount of loan interest you paid during the year—whichever is less.

If you paid at least $600 in student loan interest during the year, your loan servicer should send a Form 1098-E showing how much you paid. If you don’t receive a 1098-E, you can still claim the student loan interest deduction. You just need to call your loan servicer or log in to your online account to find the amount of interest you paid.

Here’s some good news: You don’t have to itemize deductions to claim the student loan interest write-off. That should come as a relief, because it’s now much more difficult to itemize as a result of the 2017 tax overhaul signed by President Donald Trump.

But student loan interest is an adjustment to income—commonly known as an above-the-line deduction. So you claim it on Schedule 1 of your Form 1040, rather than as an itemized deduction on Schedule A.

There’s no separate student loan interest tax form to fill out.

How Does Your Income Affect Your Student Loan Interest Deduction?

Your deduction may be limited or eliminated entirely if your income is too high, because the student loan interest deduction phases out for upper-income taxpayers.

Income in this case is measured by your modified adjusted gross income (MAGI), which is typically the same as your adjusted gross income (AGI) but with your deductible student loan interest added back in. A few less common exclusions and deductions, like those on foreign earned income and foreign housing, also are restored when calculating your MAGI.

To claim the full student loan interest write-off, your MAGI must be below $70,000 ($140,000 if you file a joint return with your spouse). If your income is between $70,000 and $85,000 ($140,000 and $170,000 for joint filers), you’re eligible for a reduced deduction. If your MAGI is above $85,000 ($170,000 for joint filers), you can’t claim the deduction at all.

To calculate your deduction, you can use the student loan interest deduction worksheet included in the IRS instructions for Form 1040. If you use some of today’s best tax software to complete your return, the software will calculate your deduction for you.

Frequently Asked Questions (FAQs)

Is it worth claiming student loan interest on your tax return?

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.

Several other tax breaks are based on or limited by your AGI. For example, you can deduct out-of-pocket medical expenses that exceed 7.5% of your AGI. So lowering your AGI by claiming the student loan interest deduction can allow you to deduct more of your medical expenses.

The child and dependent care credit also has income limits based on your AGI, so claiming the student loan interest deduction may help you qualify for a larger credit.

Are student loans tax-deductible in 2022?

Yes, the interest portion of your student loan payments is tax deductible in 2022. However, you cannot deduct the principal portion of your loan payments (the amount that goes toward paying down your original loan balance).

What is the income limit for the student loan interest deduction in 2022?

You cannot claim the student loan interest deduction if your modified adjusted gross income is above $85,000 ($170,000 if you file a joint return with your spouse).

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.

You can claim the full deduction (up to $2,500) if your MAGI is below $70,000 ($140,000 for joint filers).

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