Can you deduct the interest you pay on your college loans? The
answer is yes, subject to certain limits. The maximum amount of student loan
interest you can deduct each year is $2,500. The deduction is phased out if
your adjusted gross income (AGI) exceeds certain levels, as explained below.
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 post-graduate programs also qualify. Thus,
an internship or residency program leading to a degree or certificate awarded
by an institution of higher education, hospital, or health care facility
offering post-graduate training can qualify.
It doesn't matter when the loan was taken out or whether interest
payments made in earlier years on the loan were deductible or not.
For 2018, the deduction is phased out for taxpayers who are
married filing jointly with AGI between $135,000 and $165,000 ($65,000 and
$80,000 for single filers). The deduction is unavailable for taxpayers with AGI
of $165,000 ($80,000 for single filers) or more.
Married taxpayers must file jointly to claim this deduction.
No deduction is allowed to a taxpayer who can be claimed as a
dependent on another's return. For example, in the typical situation where a
parent is paying for the college education of a child whom the parent is
claiming as a dependent, the interest deduction is only available for interest
the parent pays on a qualifying loan, not for any interest the child/student
may pay on a loan the student may have taken out. The child will be able to
deduct interest that is paid in a later year when he or she is no longer a
dependent.
The deduction is taken "above the line." In other
words, it's subtracted from gross income to determine AGI. Thus, it's available
even to taxpayers who don't itemize deductions.
Other requirements. The interest must be on funds borrowed to cover
qualified education costs of the taxpayer or his spouse or dependent. The
student must be a degree candidate carrying at least half the normal full-time
workload. Also, the education expenses must be paid or incurred within a
reasonable time before or after the loan is taken out.
Taxpayers must keep records to verify qualifying expenditures.
Documenting a tuition expense isn't likely to pose a problem. However, care
should be taken to document other qualifying education-related expenditures
such as for books, equipment, fees, and transportation.
Documenting room and board expenses should be straightforward
for students living and dining on campus. Student who live off campus should
maintain records of room and board expenses, especially when there are
complicating factors such as roommates.
Please contact us if you
would like assistance in determining whether you qualify for this deduction or
if you have any questions about it.
