You took out those large student loans, and you may be thinking this is one loan that seems like it is taking forever to pay off. You also may be wondering if you should pay off your student loans in full, or put more money towards these loans, then pay down credit cards, or other loans.
Since there is a tax deduction on student loan interest and the interest rate is typically lower than other loans, this loan should typically be paid after paying off credit card loans and any similar high interest loans.
Keep reading to find out exactly how you can claim the student loan interest deduction.
Student loan interest you've paid is one of those advantageous "above the line" tax deductions that you can claim without itemizing. It's tucked into the adjusted gross income section of the first page of Form 1040. You can take it in addition to itemizing other deductions, or you can take it if you choose to use the standard deduction rather than itemize. The deduction reduces your adjusted gross income, and this can directly affect your eligibility for numerous other deductions and tax credits.
Reporting Student Loan Interest
There's no need to dig through all your student loan statements for the year trying to track down how much interest you paid. Your lender should send you a Form 1098-E sometime after the first of the year. The amount of interest you paid is reported in box 1.
Are You and Your Loan Eligible?
You can deduct interest on student loans paid by you, or by your spouse if you file a joint return.
You can't claim the student loan interest deduction if you file a separate married return. You must use the single, head of household, qualifying widow(er), or married filing jointly filing status to claim it.
You must also be legally obligated to repay the loan—this means you or your spouse are the signatories on the loan if you file a joint return—and you can't be claimed as dependents on anyone else's tax return.
The loan must be a qualified student loan for the benefit of you, your spouse, or your dependent. Loans from a qualified employer plan don't count, nor do private loans from family or friends.
Limits and Income Limitations
The most student loan interest you can claim as a tax deduction is limited to $2,500 as of the 2017 tax year. The deduction is also limited by your income—it's reduced for taxpayers with modified adjusted gross incomes in a certain phase-out range and it's eventually eliminated entirely if your MAGI is too high.
Student Loan Interest Deduction Phase-Outs
The phase-out ranges for the 2017 tax year are:
Filing Status Phase-out Begins Phase-out Ends
Married Filing Jointly 130,000 160,000
Qualifying Widow(er) 65,000 80,000
Head of Household 65,000 80,000
Single 65,000 80,000