Tax Tip of the Month

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September, 2018

Educate yourself on the student loan interest deduction

Although recent tax legislation has eliminated or scaled back many prized deductions for 2018 through 2025, it didn't touch the deduction for student loan interest. So the usual questions remain: Who can claim the deduction and for how much?

Student loan interest deduction basics: 

For starters, the deduction for student loan interest is claimed "above the line," so it's available to both itemizers and taxpayers who take a standard deduction. The annual deduction is limited to no more than $2,500 of the interest paid for qualified expenses like tuition and fees, room and board, books, supplies and equipment, and other necessary expenses (e.g., transportation).

The loan can be for your own education, as well as for your spouse or a dependent. Whoever pays the loan is eligible to deduct the interest, subject to the following rules.

Most importantly, the IRS says that student loan interest may be deductible only if all of the following apply:

  • You paid interest on a qualified student loan in the tax year of the tax return
  • You're legally obligated to pay interest on a qualified student loan
  • Your filing status is not married filing separately
  • Your modified adjusted gross income (MAGI) is less than the specified annual amount
  • You or your spouse (if filing jointly) could not be claimed as dependents on someone else's tax return. (Under recent legislation, dependency exemptions are eliminated for 2018-2025.)

MAGI limit for deductions

The MAGI limit is indexed for inflation, although increases the last few years have been small or nonexistent. For 2018, the deduction is phased out for a MAGI between $65,000 and $80,000 for single filers or $135,000 and $165,000 of MAGI for joint filers. Once you exceed the upper threshold of this range, you can't claim any deduction.

Due to the MAGI limits, students may have a better chance than their parents of salvaging some tax benefit for paying off student loan payments.

Please don't hesitate to contact us with questions about the student loan interest deduction, or other tax deductions for your particular circumstances.


Please do not hesitate to contact us at 559-226-2209 if you have any questions or concerns about preparing your 2017 tax return. In addition, if you would like to schedule an appointment, either call us or email us at roland@rooscpa.com. Alternatively, you can schedule an appointment by submitting an online form through our website at www.rooscpa.com/contact-us/

Hope you find this helpful and we look forward to serving you.

 

Any financial or tax information contained in this article is taken from a general view and should not be acted upon in your specific circumstances without further details and analysis of the situation or professional assistance from a CPA or tax return preparer.

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