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Your 2019 Guide to the Student Loan Interest Deduction

Several tax deductions were eliminated as part of the Tax Cuts and Jobs Act, but fortunately for Americans with student loan debt, the student loan interest deduction wasn't one of them.

Millions of Americans have student loan debt, and the student loan interest deduction can help to alleviate some of the burden of paying it back. With that in mind, here's what Americans who make student loan payments need to know about this valuable deduction in 2019.

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How much student loan interest can you deduct?

If you have qualifying student loan debt, you can deduct the interest you paid on the loan during the tax year. This is capped at $2,500 in total interest per return, not per person, each year. In other words, if you're single, you can deduct as much as $2,500 of student loan interest. However, if you're married and file a joint return, you and your spouse can only deduct a total of $2,500, even if both spouses have student loan debt.

If your student loans are officially called "student loans," such as Federal Direct Loans or a student loan through a private lender, you should receive a Form 1098-E, Student Loan Interest Statement, that tells you how much you paid in interest throughout the year. If you borrowed for qualified educational expenses in other ways (more on that later), you may need to review statements to determine your interest expense.

Income limitations

Like many tax breaks, the student loan interest deduction is designed to provide tax relief to Americans with low to moderate incomes. So, the ability to take the deduction begins to phase out above a certain MAGI (modified adjusted gross income) level.

For the 2018 tax year -- the return you file in 2019 -- here's the phaseout limitations:

Tax Filing Status

Deduction Starts to Phase Out With MAGI Above...

Deduction Is Eliminated Completely With MAGI Above...

Single, head of household, qualified widow(er)

$65,000

$80,000

Married filing jointly

$135,000

$165,000

Data source: IRS. (Note: If you file as "married filing separately," you can't use the student loan interest deduction at all.)

For the 2019 tax year -- the return you'll file in 2020 -- the income thresholds are increasing:

Tax Filing Status

Deduction Starts to Phase Out With MAGI Above...

Deduction Is Eliminated Completely With MAGI Above...

Single, head of household, qualified widow(er)

$70,000

$85,000

Married filing jointly

$140,000

$170,000

Data source: IRS.

Here's how this works. Let's say that you have at least $2,500 in student loan interest. If your MAGI (for most taxpayers, MAGI is the same as AGI, or adjusted gross income) is at or below the lower threshold for your filing status, you can deduct the entire $2,500. If your MAGI is greater than the higher threshold, you can't deduct any of it. And if your MAGI falls between the two thresholds, you are entitled to a partial deduction.

What is a qualified student loan?

For a loan to qualify as a "student loan" by the IRS' definition, it must have been obtained for the sole purpose of paying for qualified education expenses for you, your spouse, or someone who was your dependent at the time you took out the loan.

Furthermore, the education expenses paid with the loan must have been paid or incurred within a "reasonable period of time" before or after you took out the loan. In a nutshell, this means that something like obtaining a personal loan and saying you used it to pay for tuition three years later is probably not "reasonable." The IRS defines this as expenses related to a specific academic period and when the loan's proceeds are disbursed between 90 days before the academic period starts and 90 days after it ends.

One key takeaway from this section is that the loan doesn't need to be an official "student loan" in order to qualify. For example, if you obtained a personal loan from a bank and used it for qualifying education expenses, it can be considered a student loan for the purposes of the deduction. The same can be said for interest on credit card debt if the card is used solely for the purposes of paying for education expenses.

Qualified education expenses

The student for whom the loan was taken out must have been enrolled at least halftime in a program that leads to a degree, certificate, or other credential. And the loan cannot have been from someone related to you.

Finally, "qualified education expenses" is a broad term, and refers to tuition and fees, room and board (with certain limitations), books, supplies, equipment, and other necessary expenses associated with attending and completing the coursework.

What if you don't itemize?

Fortunately, the student loan interest deduction is available to all qualifying taxpayers, regardless of whether they choose to itemize deductions or not. Technically, this is an "adjustment to income," which is also known as an above-the-line deduction.

The student loan interest deduction can be very valuable. If you're in the 22% marginal tax bracket, a $2,500 student loan interest deduction translates to $550 in tax savings. So, be sure to properly document your student loan interest so that you can claim as much of a deduction as you're entitled to.

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