What you need to know about student loans and taxes

High school student reviewing student loans and taxes with parents

IRS rules around student loans interest and deductions.

With tax season upon us, there’s some good news with you: if you’ve been repaying your student loans this year, you may be able to get some money back.1 The IRS allows for the deduction of up to $2,500 in student loan interest in some cases, even on any voluntary payments you made!

How do I know if I’m eligible to deduct my student loan interest?

By the IRS rules, you can claim the deduction if you meet all of the following requirements:

  • Your filing status is any filing status except married filing separately.
  • No one else is claiming an exemption for you on his or her tax return.
  • You are legally obligated to pay interest on a qualified student loan.
  • You paid interest on a qualified student loan.
  • You incurred the loan as/for a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.
  • You made a Modified adjusted gross income (MAGI) of less than $75,000 (or $155,000 if married filing jointly) in 2013. See IRS publication 970 to figure out your MAGI.

What can I deduct?

Deduct any interest you paid on a qualified student loan—up to the $2,500 cap—in 2013. A qualified student loan is one you took out solely to pay qualified education expenses that were:

  • For you, your spouse, or a person who was your dependent when you took out the loan
  • Paid or incurred within a reasonable period of time before or after you took out the loan
  • For education provided during an academic period for an eligible student.

This means that federal student loans, private student loans, and even credit card payments for student expenses (for books, tuition and housing—not Saturday night pizzas) are all eligible forms of loans. Interest here even includes any loan origination fees you may have incurred. As an unusual move by the IRS, you can even claim any payments made on your behalf so long as you meet the criteria above. However, loans from a related person or an employer plan are not qualified student loans.

What are the income limits for the student loan deduction?

If you make less than $60,000 (or $125,000 if married filing jointly), you are eligible for the full deduction. A MAGI between $60,000 and $75,000 ($125,000 to $155,000 if married filing jointly) gives you a partial deduction. A MAGI of $75,000 ($155,000 if married filing jointly) or more disqualifies you from the deduction.

Of course, you should always consult with your tax advisor to see how these rules apply to your exact situation, but good news may be coming your way for asking.

1 Consult your own tax advisor

Related articles