Tax rules allow write-offs of up to $2,500 in student loan interest. But as with just about anything taxe-related, restrictions apply.
If you’re still paying interest on student loans from medical school or if you’re a parent who has taken out a loan to pay your child’s college expenses, you may be eligible for a tax deduction that many taxpayers overlook. The tax rules allow you to write off as much as $2,500 in student loan interest and you don’t even have to itemize your deductions to take advantage of this break. As with just about anything that has to do with taxes, however, some restrictions apply.
One of the major hurdles is the income limits. The loan-interest deduction starts to phase out for single taxpayers with an adjusted gross income of more than $55,000 and disappears when the AGI goes over $70,000. For married taxpayers filing jointly, those limits are $115,000 and $145,000. Also, if your spouse earns a lot more than you do, you can’t get around the income limits by filing a separate return. To be eligible to take the loan-interest deduction, married couples must file a joint return.
Eligibility rules also say that the loan must be taken out solely to pay for higher education costs. And if you take out a home equity loan to pay for college, you can’t have it both ways — you may be able to claim the interest payments as deductible mortgage interest, but you can’t also claim the student loan interest write-off. For more information on deducting student loan interest and a load of other education tax breaks, check out IRS Publication 970.