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Student Loan Interest: Deduct $2,500 Off Your Taxes

If you're stressed about college costs, here is a consolation prize: You might be eligible to deduct student Income taxesloan interest off your federal tax bill.

The maximum deduction on student loan interest is $2,500. Luckily, you can capture this deduction even if you don't itemize your tax return. That's because, unlike many tax deductions, the student loan interest deduction is an above-the-line adjustment to your income.

You can use the tax deduction whether you are paying interest on federal or private loans.

Here are some of the requirements to capture this deduction:

1. The student loan proceeds must have been used solely for qualified educational expenses such as tuition, room and board, books, supplies, transportation and miscellaneous expenses.

2. You can only claim the deduction for loans that you are legally obligated to pay. For instance, if a college grad's parents are paying off a student's Stafford Loan, the parents wouldn't be eligible to claim the deduction. That's because Stafford Loans are the legal obligation of the student or former student. In this case, however, the college grad could be eligible to claim the tax deduction even if the parents are making the payments.

3. You can't claim a deduction if you are a dependent. For instance, if parents claim a college student on their tax return, the child couldn't capture the student loan interest deduction.

4. You won't be eligible if you file a return as "married filing separately."

5. You must meet income requirements to claim the deduction. Your modified adjusted gross income must be less than $70,000 for single taxpayers and $145,000 for joint filers.

You can obtain further information about this tax deduction by reading IRS Publication 970 Tax Benefits for Education and Tax Topic 456 Student Loan Interest Deduction.

Lynn O'Shaughnessy is the author of The College Solution and she also writes about college for TheCollegeSolutionBlog. Follow her on Twitter.

Student loan interest image by alancleaver_2000. CC 2.0.

Further reading:
Student Debt: Getting Your Payments to $0
The Best and Worst College Degrees by Salary
The Secret to Snagging More Financial Aid

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