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Student loan debt in America exceeded $ 1.5 trillion last year and is not slowing any time soon. And what keeps people in such a difficult situation with their student debt, besides the ever-increasing cost of going to college, is the interest.
Interest on student loans can be important in the tax season. Depending on a number of factors, you may be able to claim an interest deduction on student loans of up to $ 2,500. This means the possibility of reducing your taxable income by thousands of dollars. This could be a big difference depending on the amount of your taxable income in the tax bracket in which you are located.
If you are lucky enough to be eligible for the deduction, it is a simple process, separate from any detailed deductions you may have.
Can taxpayers still claim the interest deduction on student loans?
Nevertheless, you may be wondering whether the tax deduction of interest on student loans – one of the few forms of minor badistance that can be obtained by those heavily in debt for education – is still possible. A first version of the 2017 Tax and Employment Tax Act (TCJA) included it as one of many tax deductions to be eliminated.
However, the final bill that was pbaded included the deduction of interest on student loans. Thus, those who hope to obtain taxable income of $ 2,500 can rest easily. You can still claim the tax deduction if you meet all the requirements.
You claim this deduction as an income adjustment. So, even if you use the standard deduction on your tax return, you can claim the interest deduction on student loans.
Eligibility and Limits of the Student Loan Interest Tax Deduction
The mere fact of having student loans and the interests that accompany them unfortunately does not allow you to benefit from the tax deduction. You will have to meet a number of criteria relating to various factors, including how you report, the income you earn and whether or not your loan is considered an "eligible student loan".
What is the impact of your deposit status on the deduction of student loan interest?
The only status that prevents you from claiming this tax deduction is if you are married and file separately. If you file a single, marriage or head of household return, you may be able to claim the tax deduction of your interest on your student loans.
However, even under these circumstances, other circumstances could prevent you from benefiting from the tax deduction. For example, if you are married and drop together, neither you nor your spouse can be designated as a dependent if one of you wants to claim your deduction. If you are a parent making payments on your child's student loans but the loans are in your child's name, you are not eligible for the deduction.
Married people filing common applications should know something else: this $ 2,500 cap on student loan interest deductions does not mean you can each get $ 2,500 deducted from your taxable income. The statement you produce both has a cap of $ 2,500.
What makes your loan a qualified student loan?
The loan you are trying to deduct from interest must meet certain conditions for you to claim these deductions.
The loan you pay, in addition to being in your name, must be for you, your spouse or someone to whom you have successfully claimed as a dependent.
Your loan must have been used to pay eligible education expenses. This includes tuition, textbooks and course equipment required.
In addition to being used specifically and exclusively for the education of an eligible student during an academic period, the loan must have been paid or incurred in what the IRS described as a "reasonable period of time". The loan must be disbursed within 90 days before the start of the academic period to 90 days after the end of the academic period. At a minimum, the student must be registered half-time.
If the loan was made by a family member or an employer, it is probably not eligible.
What income qualifies you?
The interest deduction on student loans is intended to help people who are heavily in debt and have trouble making ends meet. After all, getting a deduction of $ 2,500 from your taxable income is much more helpful for one person in a lower tax bracket than another in the highest tax bracket.
Your adjusted adjusted gross income (MAGI) will determine your eligibility. The calculation of MAGI requires the addition of certain elements to your adjusted gross income (AGI), such as income exclusions earned abroad. These may not affect you at all and you may end up with a MAGI identical to your AGI.
The limit of the amount of income that you can generate and which nevertheless allows you to benefit from the deduction of interest on student loans, depending on the status of your deposit, for the taxation year 2018 is the following:
- Single: $ 80,000
- Married wedding: $ 165,000
- Head of household: $ 80,000
That's not all the history of qualifying income, though. If you exceed this limit but you have exceeded a certain annual income, your deduction will be phased out and you will not be able to get the total deduction of $ 2,500, but only a lower percentage. For single people or heads of household, phasing out begins when your income reaches $ 65,000. If you are married and drop together, the phase out starts at $ 135,000.
Let's say you fall into this range. Here's how to calculate what you can deduce. Suppose you produce as a single person, you have a MAGI of $ 70,000 and you pay $ 1,500 in interest on student loans. You will multiply that $ 1,500 by a fraction. The numerator of this fraction is your MAGI minus the beginning of the phasing out range (in this case, $ 70,000 to $ 65,000). The denominator is the end of the phasing out beach less the start of the elimination beach (in this case $ 80,000 to $ 65,000).
So your equation to calculate your deduction would be:
1,500 x (70,000 to 65,000) / (80,000 to 65,000)
This can be simplified to 1,500 x 5,000 / 15,000, which is a $ 500 tax deduction on student loan interest.
How to claim the interest deduction on your student loans
Once you have determined whether you are eligible to claim the deduction and calculated the amount you can deduct, it is easy to claim this deduction.
To claim it on your tax return, you must include it in your Form 1040. The new Form 1040 is designed to be much faster and simpler than in previous years. In itself, it contains only the most necessary and prudent information. If you need to add more information to the IRS, there are 6 different "schedules" that give it room. If you add your student loan deduction, you must add a section on line 33 to Schedule 1 as part of the income adjustments.
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