Who Can Still Get The Full Student Loan Interest Deduction For 2020
There are still plenty of people who can claim the full interest deduction this year. There are millions of borrowers with private student loans who werent granted any relief on their interest rates this year, though some may have gotten temporary hardship forbearances from their lenders.
There are also millions of borrowers with older federal loans that did not qualify for the relief in the CARES Act. That includes borrowers in the Federal Family Education Loan program, through which the government backed loans that are actually owned by commercial lenders, and those with Perkins Loans, some of which are owned by colleges.
There are also income cutoffs to qualify for the maximum value of the deduction. If youre a single filer, you need a modified adjusted gross income of $70,000 or less. If youre married and filing jointly, the cutoff is $140,000. Borrowers earning up to $85,000 or $170,000 can qualify for a partial deduction.
Loans that count toward the deduction include any loan used to pay for an eligible student for qualified education expenses, such as tuition, fees, books, supplies, and room and board, at an eligible institution.
Finally, there are a few other stipulations to be able to claim this deduction, including that your filing status isnt married filing separately and that you cant be claimed as a dependent on another persons taxes. You also cant claim the deduction for payments you made on someone elses behalf .
Student Loan Interest Deduction Phaseouts
The phaseout ranges for this tax credit depend on your filing status. The return you would have filed.
| 2022 Student Loan Phaseouts | |
|---|---|
| $70,000 | $85,000 |
The student loan deduction phaseout starts at $145,000 if you are married and filing jointly, and you can no longer claim this deduction at $175,000. For individuals filing by themselves who are not dependents, the phaseout begins at $70,000 and you can no longer claim the deduction if your MAGI is more than $85,000.
You can deduct up to $2,500 in student loan interest if your MAGI is under the threshold where the phaseout begins. Your limit is prorated if your MAGI falls within the phaseout rangefor example, $70,000 to $85,000 if you’re single.
These figures are adjusted for inflation, so they can change slightly from year to year. The IRS typically announces inflation adjustments at the end of the tax year. For tax year 2023, those thresholds will increase.
| 2023 Student Loan Phaseouts | |
|---|---|
| $75,000 | $90,000 |
Unfortunately, your student loan interest isn’t deductible at all if your income is more than the ceiling where the phaseout ends. You can see exactly how your deduction would play out by answering a few questions on the IRS website.
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 , which is typically the same as youradjusted gross income 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 . If your income is between $70,000 and $85,000 , youre eligible for a reduced deduction. If your MAGI is above $85,000 , you cant 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 todays best tax software to complete your return, the software will calculate your deduction for you.
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What Other Tax Information Might Apply To Students
- Your credit card interest might be deductible: If you use your credit card for qualified educational expenses, you might be able to write off the interest on your taxes. But there is one condition: every item charged to the card must be used exclusively for school-related needs, otherwise you cant write anything off.
- Loan forgiveness can result in a tax bill: If youre on an income-driven student loan forgiveness program, you might owe a large tax debt after the loan is forgiven. The IRS might consider the forgiven debt to be income.
- Consolidated student loans still qualify for the student loan tax deduction: If you have multiple student loans , your student loan interest is probably still deductible on your taxes.
How To Calculate Your Deduction
Calculating your deduction begins with your MAGI. This is your all-important adjusted gross income before you take other tax deductions into account, including the student loan interest deduction you’re hoping to qualify for. You can’t deduct this first before calculating your MAGI. That would be like claiming a tax break twice for the same expense.
You must also add back the following exclusions and deductions if you took any of them, but these are somewhat uncommon:
- The foreign earned income exclusion
- The foreign housing exclusion
- The income exclusions for residents of American Samoa or Puerto Rico
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New Student Loan Interest Deduction On The 2021 Taxation Statements
Student loan borrowers is allege a beneficial deduction as much as $2,five hundred to their 2021 taxation statements. New Irs basics which deduction towards matter allocated to student loan notice repayments. So it deduction pertains to both individual and you may government figuratively speaking. Although not, money spent paying the principal harmony actually measured on it deduction. Your bank is to send an excellent 1098-E taxation file with an exact accounting of your own money spent into the student loan attract.
Note: Lenders are merely needed to have a 1098-Age to possess individuals whom shell out more than $600 during the notice. If you invested reduced otherwise provides short funds with various loan providers, you can however deduct you to definitely matter. You should be aware you may have to get hold of your financial having documentation.
For additional guidance, plus income limits and you will stage away, be sure to diving as a result of the brand new student loan focus deduction FAQ.
When you have issues about even if your student loan focus are a qualified deduction, the fresh Internal revenue service has actually a thorough product to own choosing for individuals who qualify.
Tax Information For Cosigners
Cosigners on Sallie Mae student loans will be notified of the total amount of interest paid on eligible loans, not necessarily the interest the cosigner paid. This notification is solely informative. The borrower on the loan will receive the applicable tax form. If you need a tax form, please contact your borrower.
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Theres A Deduction For Student Loan Interest But Do You Qualify For It
If youre paying back college loans for yourself or your children, you may wonder if you can deduct the interest you pay on the loans. The answer is yes, subject to certain limits. The maximum amount of student loan interest you can deduct each year is $2,500. Unfortunately, the deduction is phased out if your adjusted gross income exceeds certain levels, and as explained below, the levels arent very high.
The interest must be for a qualified education loan, which means a debt incurred to pay tuition, room and board, and related expenses to attend a post-high school educational institution, including certain vocational schools. Certain postgraduate programs also qualify. Therefore, an internship or residency program leading to a degree or certificate awarded by an institution of higher education, hospital or health care facility offering postgraduate training can qualify.
It doesnt matter when the loan was taken out or whether interest payments made in earlier years on the loan were deductible or not.
Phase-out amounts
For 2021, the deduction is phased out for taxpayers who are married filing jointly with AGI between $140,000 and $170,000 . Thus, the deduction is unavailable for taxpayers with AGI of $170,000 or more.
For 2022, the deduction will be phased out for taxpayers who are married filing jointly with AGI between $145,000 and $175,000 . That means the deduction is unavailable for taxpayers with AGI of $175,000 or more.
Other requirements
Is The Amount Of Interest Higher Than You Expected
Capitalized interest may be counted as interest paid on the 1098-E.That capitalized interest and your origination fees may be tax deductible.If you have more questions on your 1098-E, please contact a tax advisor.
Please note: Because loan payments were not required and interest rates were at 0% during 2022, your interest paid will likely be lower than in previous years.
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Which Student Loans Qualify Which Dont
The student loans that qualify for the interest waiver during the pandemic are any loans owned by the Department of Education. These are Direct Loans, subsidized and unsubsidized Stafford Loans, Parent and Graduate Plus Loans and consolidation loans. The student loans that do not qualify for the interest waiver are many. They are the Federal Family Education Loans and the Perkins Loans, if held commercially by lending institutions. If they are held by the Department of Education, they are also covered.
The only student loans that qualify for the student loan interest deduction are those that are for the benefit of you, your spouse or your dependent and spent on qualifying education expenses. Private loans or loans from an employee-sponsored plan are not eligible. The loan must be for an academic term and the student must be at least half-time to qualify.
Student Loan Payment Suspensions
On March 13, 2020, then-President Trump suspended federal student loan payments, interest-free, indefinitely during the coronavirus crisis. President Joe Biden continued the pause until Sept 30, 2021, then until Dec. 31, 2022.
Currently, the pause on student loan payments has been extended once again. While the White House’s student loan forgiveness is blocked by a federal court, the new pause is in effect until the earlier of either:
Keep in mind, though, that this does not affect private student loans. The pause on federal student loan payments does mean that you may not have interest payments to deduct for any federal student loans while this suspension is in effect.
As part of the American Rescue Plan, signed into law on March 11, 2021, by President Biden, all forms of student loan forgiveness from Jan. 1, 2021, until the end of 2025, are now tax-free.
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How Does The Student Loan Interest Deduction Work In 2021
Known as an above the line adjustment to income, your student loan interest deduction adjusts or deducts the amount paid up to the maximum from your MAGI.
This allows you to use the Standard Deduction which, for the 2020 Tax Year, is $12,400 for Single, $18,650 for Head of Household, and $24,800 for Married Couple Filing Jointly and a Qualifying Widow and is on line 12 of 2020 Tax Form 1040. This adjustment can also be used when itemizing your deductions on Schedule A as well.
Subtracted from line 20 of Schedule 1, 2020 Tax Form 1040, this student loan interest deduction will reduce your MAGI impacting the amount you pay for federal and state taxes, as well as positively affecting other possible deductions and credits that are based on your MAGI.
Student Loan Interest Deduction Basics
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. The largest amount you can claim for a student loan interest deductible is $2,500 for 2023, but that is limited by your income eligibility. You may have paid more interest than that during the year, but that is the limit of your claim.
If you are single, head of household or a qualifying widow, your student loan interest phase-out starts at $75,000 modified AGI and the phase-out ends at $90,000. If you are married you can make $150,000 before phase-out begins. You can earn up to $180,000 which is the level at which the phase-out ends.
Keep in mind that the pandemic led to the March 2020 CARES Act, which paused student loan payments, froze interest rates at 0% and stopped debt collection until it expired. The last extension set the expiration date at June 30, 2023. In certain situations, the student loan interest is not subject to this waiver and must be paid regardless.
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Under What Circumstances Do Federal Loan Servicers Report Interest Payments On Irs Form 1098
As required by the IRS, federal loan servicers must report payments on IRS Form 1098-E by Jan. 31, 2022 if the interest received from the borrower in the tax year was $600 or more.
If a borrower paid less than $600 in interest to a federal loan servicer during the tax year, the borrower may visit his or her servicers website for the exact amount of interest paid during the year and, if needed, to request a 1098-E.
Student Loan Interest Deduction Vs Other Breaks
Students enrolled in higher education programs and their parents may be eligible for other breaks, including tax credits, in addition to the student loan interest deduction. Tax credits are even more valuable than deductions because they are subtracted from the tax you owe on a dollar-for-dollar basis rather than simply reducing your taxable income.
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Tax Tips For Students
Heading into tax season and want a few more tax tips to help you through? Read some of our tax tips below.
Tip #1: File even if youre below the income threshold
If you make less than the IRS income filing threshold, which changes each tax year,youre not required to file a tax return. Generally, if you made under the standard deduction for the tax year you are not required to file a tax return. But even if you make less than the specified amount, you might still be owed a tax refund if your employer withheld taxes or if you are eligible for some other tax credits like education credits or arecovery rebate credit. The IRS reports close to a billion dollars in unclaimed refunds every year, some of which belongs to college students who file their taxes.
Tip #2: Get a tax refund for work-study opportunities
Many college students end up in a work-study program to explore their career interests and get experience in their desired field. Any money you earn is considered taxable income. However, the school will withhold income taxes from your paychecks, so you may get a refund when its time to pay taxes.
Tip #3: Pay attention to your location
How Much Student Loan Interest Is Tax
You can deduct either $2,500 in student loan interest or the actual amount of loan interest you paid during the yearwhichever 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 dont 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.
Heres some good news: You dont have to itemize deductions to claim the student loan interest write-off. That should come as a relief, because its 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 incomecommonly 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.
Theres no separate student loan interest tax form to fill out.
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Federal Student Loan Tax Benefit
You may be eligible for certain federal tax credits and deductions based on your federal loan repayment.
The Education Loan Interest Deduction provides up to a $2,500 tax deduction for the interest paid during repayment on a qualified student education loan.
If you are still a full-time student, you may be eligible for other higher education tax benefits.
When Are 2020 Tax Returns Due
Last year, the 2019 tax return due date was postponed until July 15, 2020, to give ample time to people affected by the coronavirus pandemic. However, this year the deadline has gone back to Thursday, April 15, 2021. So personal tax returns have to be postmarked no later than midnight on that day or be subject to penalties and interest charges.
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No Matter How You File Block Has Your Back
