Taxpayers who make payments on a qualified student loan may be eligible for relief if the loan was only utilized for higher education costs.
For students in the United States, figuring out their money while attending college is an exciting, daunting, and time-consuming experience.
How Much Interest Is Tax Deductible?
Many borrowers also fail to investigate tax credits and interest deductions, which can help them save a significant amount of money, particularly after graduation.
The interest deduction allows you to deduct up to $2,500 from your taxable income, or the entire amount of interest paid on loans, whichever is less. This advantage may be available for both private and federal loans. The deduction is “above the line,” which means you don’t have to itemize your taxes to benefit from it.
It is important to note that income phaseouts are dependent on your modified adjusted gross income (MAGI).
If your MAGI is between $70,000 and $85,000 ($145,000 and $175,000 if you file jointly), the deduction is gradually reduced. For borrowers with a MAGI of $85,000 or more ($175,000 or more if filing jointly), the deduction is removed.
Read more: The federal IDR proposal will eliminate 3.6 million loans
Who Is Eligible For Student Loan Interest Tax Breaks?
You must have paid interest on a qualified student loan in the tax year 2022 and be legally obligated to pay interest on a valid loan to be eligible for the Student Loan Interest Deduction.
Those whose filing status is married filing separately, as well as those whose MAGI exceeds a certain amount (determined annually), are not eligible for the plan.
“If you paid 600 dollars or more in interest on a qualified student loan during the year,” the IRS notes, “you should receive a Form 1098-E, Student Loan Interest Statement from the entity to which you paid the interest.”
Read more: Powerful genome editing tool CRISPR poses potential in reversing vision loss