Student Loan Interest Deduction
Student Loan Interest Deduction
Generally, personal interest you pay, other than certain mortgage
interest, is not deductible on your tax return. However, if your
modified adjusted gross income (MAGI) is less than $70,000 ($145,000 if
filing a joint return), there is a special deduction allowed for paying
interest on a student loan (also known as an education loan) used for
higher education. Student loan interest is interest you paid during the
year on a qualified student loan. It includes both required and
voluntary interest payments.
For most taxpayers, MAGI is the adjusted gross income as figured on
their federal income tax return before subtracting any deduction for
student loan interest. This deduction can reduce the amount of your
income subject to tax by up to $2,500 in 2008.
The student loan interest deduction is taken as an adjustment to
income. This means you can claim this deduction even if you do not
itemize deductions on Form 1040's Schedule A.
Qualified Student Loan
This is a loan you took out solely to pay qualified education expenses that were:
- For you, your spouse, or a person who was your dependent when you took out the loan.
- Paid or incurred within a reasonable period of time before or after you took out the loan.
- For education provided during an academic period for an eligible student.
Loans from the following sources are not qualified student loans:
- A related person.
- A qualified employer plan.
Qualified Education Expenses
For
purposes of the student loan interest deduction, these expenses are the
total costs of attending an eligible educational institution, including
graduate school. They include amounts paid for the following items:
- Tuition and fees.
- Room and board.
- Books, supplies and equipment.
- Other necessary expenses (such as transportation).
The cost of room and board qualifies only to the extent that it is not more than the greater of:
- The allowance for room and board, as determined by the eligible
educational institution, that was included in the cost of attendance
(for federal financial aid purposes) for a particular academic period
and living arrangement of the student, or
- The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
