Student loan debt is a reality for millions of Americans, with the average borrower owing around $30,000 by the time they graduate. While repaying these loans can be a significant financial burden, there is some good news for borrowers. Certain types of student loan interest may be tax deductible, which can provide some relief to those struggling to pay off their debt.
In this guide, we’ll take a look at the types of student loans that are tax deductible, the rules and requirements for claiming the deduction, and how to take advantage of it on your taxes.
What types of student loans are tax deductible?
The most common type of tax-deductible student loan is the student loan interest deduction. This deduction allows you to deduct the interest you paid on your student loans during the tax year, up to a certain limit. To qualify for this deduction, your loans must have been used to pay for qualified education expenses, such as tuition, fees, books, and supplies.
What are the rules and requirements for claiming the student loan interest deduction?
To claim the student loan interest deduction, you must meet certain income and filing status requirements. For tax year 2020, the deduction is phased out if your modified adjusted gross income (MAGI) is between $70,000 and $85,000 for single filers, or between $140,000 and $170,000 for married couples filing jointly. If your MAGI is above these thresholds, you cannot claim the deduction.
Additionally, you must be the one who actually paid the interest on the loan, and you cannot be claimed as a dependent on someone else’s tax return.
How do I claim the student loan interest deduction on my taxes?
To claim the student loan interest deduction, you’ll need to file a Form 1040 or 1040-SR and include Schedule 1 (Form 1040 or 1040-SR) and Schedule A (Form 1040 or 1040-SR). You’ll need to enter the amount of student loan interest you paid during the tax year on line 33 of Schedule 1, and carry that amount over to line 4 of Schedule A.
Are there any other tax benefits for student loan borrowers?
In addition to the student loan interest deduction, there are a few other tax benefits that may be available to student loan borrowers. The American Opportunity Tax Credit, for example, can provide a credit of up to $2,500 for qualified education expenses. Additionally, the Lifetime Learning Credit can provide a credit of up to $2,000 for qualified education expenses.
Conclusion
Student loan debt can be a significant financial burden, but the good news is that certain types of student loan interest may be tax deductible. By understanding the types of loans that qualify, the rules and requirements for claiming the deduction, and how to claim it on your taxes, you can take advantage of this valuable tax benefit and save money on your student loan debt.
Keep in mind that the student loan interest deduction is only one of several tax benefits for education, and that the above information may change in the future. It is always recommended to check with a tax professional for the most up-to-date information.