Let’s face it- paying back student loans is painful. At least you’ll be able to deduct the interest paid on the loans!
College is great. However, the fairy tale ends six months after graduation, when it’s time to start making payments on your student loans.
The good news is this; when filing your taxes, you can deduct the amount you paid in interest on your student loans!
Who is Eligible to Deduct Student Loan Interest?
There are certain limitations on who can deduct interest paid on students loans. In other words, you can deduct student loan interest if;
- your filing status is NOT married filing separately
- you paid interest on a qualified student loan during the tax year
- you are legally obligated to pay interest on your qualified student loan
- your modified adjusted gross income falls below the IRS threshold (for single filers this amount is $60,000)
- you and your spouse (if filing jointly) cannot be claimed as dependents on someone else’s tax return
How Much You Can Deduct in Student Loan Interest
If you qualify to deduct the amount you paid in interest on your student loans, you should keep in mind you may not be able to deduct all of it. If you paid more than $2500 in student loan interest, you’ll only be able to deduct $2500.
If you paid anything under $2500 in student loan interest over the tax year, you’ll be happy to know that you can deduct the full amount!
Can I Take The Standard Deduction and Claim the Interest?
You do not need to itemize your deductions in order to deduct student loan interest. In other words, when filing your tax return, you can take the standard deduction and report your student loan interest.
Still need to file a prior year return and report your student loan interest? You’ll be able to get caught up on late tax returns dating back to 2005 with PriorTax!
If you’re all caught up, you can start planning how much you’ll be able to report in student loan interest on your 2014 tax return!
Photo via Found Animals Foundation on Flickr