Tax Deduction on Student Loans
The student loans interest deduction happens to be federal income tax deduction which, in the interest that you paid on qualified student loans from your taxable income, lets you subtract up to $2,500. Therefore it is easily one of the best tax breaks that are made available to students and their parents to help pay for higher education.
Also, you should take note of the fact that the interest on student loans from federal agencies has been suspended as of right now due to the COVID-19 pandemic crisis by President Trump, indefinitely. However, private student loans are not going to be affected by it. What it means is that the suspension is in effect and you may not have interest payments to deduct.
Student Loan Interest Deduction
The student loan interest deduction, much like all other types of deductions happens to reduce your income. So, for instance, if you are in the tax bracket of 22% and claim a $2,500 deduction, then your deduction would reduce your owed taxes or happen to increase the tax refund receivable by you by $550.
Now, it is important to remember here that the student loan interest deduction, unlike most other types of deductions, is claimed on the Internal Revenue Service (IRS) Form 1040 as an adjustment to income. You needn’t itemize deductions on Schedule A to claim it.
The student loan must be taken out for either the taxpayer, their spouse, or their dependents to qualify for a deduction. Also, remember that a parent who helps with repayment cannot claim the deduction, if the student happens to be the legally obligated borrower.
Needs for the Student Loans
You also need to keep in mind that the loan needs to be taken out during an academic period, for which the particular student is already enrolled for at least half-time in a program which will then lead to a degree, certificate, or any other form of credential which is recognized. The loan needs to be used for only higher education expenses which are qualified. This could include items such as tuition, fees, textbooks, supplies, and equipment which is needed for coursework. You should remember that things such as room and board, student health fees, insurance, and transportation don’t count as qualified educational expenses.
Additionally, remember that the loan has to be particularly used within and only after it is taken out. Loan proceeds must be compulsorily disbursed within ninety days before the academic period starts or 90 days after it happens to end.
Tax Break for Student Loans
Another important thing is the fact that the school where a particular student is enrolled should be an eligible institution. To check on this you can refer to the list of eligible institutions which gets published by the IRS department on its website. Lastly, remember that the student loan interest deduction isn’t the only available tax break to all the students and parents. There also happens to be a lot of federal tax credits for higher education.
