With college costs skyrocketing, student loan payments are almost a certainty after graduation. Even though you can’t escape the payments, there are tax breaks that may help ease the burden of student loans.
Luckily, taxpayers who make student loan payments on a qualified student loan may be able to get some relief if the loan they took out solely paid for higher education.
In many cases, the interest portion of your student loan payments during the tax year is tax-deductible. Your tax deduction is limited to interest up to $2,500, or the amount of interest you actually paid, whichever amount is less. As with most tax credits and deductions, there are limits in place.
You can deduct student loan interest if:
You paid interest on a qualified student loan in the tax year
You are legally obligated to pay interest on a qualified student loan
Your filing status is not married filing separately
You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's tax return, or
You are a single filer with income under $65,000, however, your full tax deduction phases out (is gradually reduced) between $65,000 and $80,000. If your income falls above those limits, student loan interest is not tax-deductible.
The other good news regarding the student loan interest deduction is that you do not need to itemize your tax deductions in order to claim it. This makes sense considering many recent college graduates are not itemizing tax deductions and instead claim the standard deduction.
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