Lewes CPA
officeProgar & Company, P.A.
Certified Public Accounting services for businesses and individuals
Deduction for student loan interest (MS Word
Deduction for student loan interest (.pdf)
Deduction for student loan interest
Dear Reader:
You have asked me if you can deduct the interest you pay on your
college loans. You can, subject to certain limits. This deduction is
a departure from the general rule that interest on “personal” loans
isn't deductible (except, in most cases, for mortgage interest on
your home). Here are the requirements for deductibility: The maximum
amount of interest you can deduct each year is $2,500. The deduction
is phased out if your adjusted gross income (AGI) exceeds certain
levels, as explained below.
The interest must be for a “qualified education loan,” which means a
debt incurred to pay tuition, room and board, and related expenses
to attend a post-high school educational institution, including
certain vocational schools. Certain post-graduate programs also
qualify. Thus, an internship or residency program leading to a
degree or certificate awarded by an institution of higher education,
hospital, or health care facility offering post-graduate training
can qualify.
It doesn't matter when the loan was taken out or whether interest
payments made in earlier years on the loan were deductible or not.
In 2008, the student loan interest deduction is phased out for
taxpayers who are married filing jointly with AGI between $115,000
and $145,000 (between $55,000 and $70,000 for single filers). The
deduction will be unavailable for 2008 for taxpayers with AGI of
$145,000 ($70,000 for single filers). The phase-out ranges for 2009
are $120,000 to $150,000 ($60,000 to $75,000 for single filers).
Married taxpayers must file jointly or no deduction is allowed.
No deduction is allowed to a taxpayer who can be claimed as a
dependent on another's return. For example, in the typical situation
where a parent is paying for the college education of a child whom
the parent is claiming as a dependent, the interest deduction is
only available for interest the parent pays on a qualifying loan,
not for any interest the child/student may pay on a loan the student
may have taken out. The child could claim the deduction for interest
paid in a later year, when he or she is no longer a dependent.
Where a deduction is allowed, it's taken “above the line.” In other
words, it's subtracted from gross income to determine AGI. Thus,
it's available even to taxpayers who don't itemize deductions.
Other requirements.
The interest must be on funds borrowed to cover qualified education
costs of the taxpayer or his spouse or dependent. The student must
be a degree candidate carrying at least half the normal full-time
workload. Also, the education expenses must be paid or incurred
within a reasonable time before or after the loan is taken out.
Taxpayers must keep records to verify qualifying expenditures.
Documenting a tuition expense isn't likely to pose a problem, but
care should be taken to document other qualifying expenditures such
as for books, equipment, fees, and other education-related costs
such as transportation.
Documenting room and board expenses should be straightforward for
the most part for students living and dining on campus. But where
the student lives off campus, records of room and board expenses
should be maintained, especially when there are complicating factors
such a roommates involved.