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The student loan interest deduction lets you deduct up to $2,500 from your taxable income if you paid interest on student loans in 2019. If you fall into the 22% tax bracket, for example, the maximum student loan interest deduction would put $550 back in your pocket.
Is student loan interest deductible?
Student loan interest is deductible if your modified adjusted gross income, or MAGI, was less than $70,000 in the past tax year. The maximum deduction is $2,500. If your MAGI was between $70,000 and $85,000, you can deduct a reduced amount of interest that you paid.
Student loan interest is not an itemized deduction — it's taken above-the-line. That means you subtract the interest you paid to lower your taxable income. If you qualify, you can take both the student loan interest deduction and the standard deduction.
» MORE: Tax deductions guide for 2019
Are student loan payments deductible?
When you repay student loans, you pay down the original balance and the interest that has accrued on that balance. You can deduct that interest on your taxes, but the entire student loan payment amount is not tax-deductible.
For example, say you have a $29,000 student loan with an interest rate of 5%. At the start of the standard 10-year repayment plan, you'd pay roughly $308 each month with about $121 of that payment going toward student loan interest.
Over your first year in repayment, you'd repay $3,691 overall: $2,293 in principal and $1,398 in interest. If you qualified for the student loan interest deduction, you could reduce your taxable income by the portion that went toward interest ($1,398), not the entire payment amount.
Who can deduct student loan interest?
With a MAGI of less than $85,000, you can deduct student loan interest if you repaid a federal or private student loan in 2019. Loans must be used for qualified education expenses and include:
Loans taken out for your own education. This deduction isn't just for graduates doing taxes: If you’re an overachiever who is making student loan payments while still in school, you may be able to take this deduction too.
Loans borrowed for someone else's education. If you took out a loan in your own name for someone else — like a parent PLUS loan for your child, for example — you can take the student loan interest deduction.
Loans you're forced to repay. Even if your wages are being garnished or you're otherwise legally obligated to repay a loan, you can still deduct any interest you've paid off.
You can't claim the student loan interest deduction if your filing status is married filing separately. You're also ineligible if you’re listed as a dependent on someone else's tax return.
Student loan interest deduction form
If you paid more than $600 in interest in 2019, you will automatically receive form 1098-E — a student loan interest deduction form — in the mail or by email. Those who paid less than $600 can still deduct interest. Ask your student loan servicer to send you the document, or check your online account for a copy of the deduction form.
Additional education tax breaks
If you're still in school or paying for education expenses, the government offers additional education tax credits and deductions. You can claim the American opportunity credit or the lifetime learning credit, or opt for the tuition and fees deduction if you don't qualify for a credit.
You can claim these benefits even if you paid for expenses with student loans. Your income and other factors can help you determine which will save you the most. As with the student loan interest deduction, you must file your taxes jointly if you're married to be eligible for these tax breaks.
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