Deducting Student Loan Interest From Your Taxes

Wednesday, February 6th, 2008

Its almost that time of year again. Tax season is upon us and for many new graduates it will be the first time they need to file their income tax. But for those graduates who have student loans, there is a bright spot. The interest paid toward those loans are deductible.

You can deduct up to $2,500 in student-loan interest paid in 2007 if your income for the year was $55,000 or less if single, or $110,000 or less if married filing jointly. Single people can take a partial deduction if they earned up to $70,000 for the year, or $140,000 if married filing jointly..

If your parents pay the loan, the IRS will treat it as though they gave the money to their child, who then paid the debt. So, a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by their parents. But if the child is being claimed as a dependent on their parent’s tax return, they’re out of luck and won’t be able to claim the write-off.

The Internal Revenue Service (IRS) has a guide to deducting student loan interest and other education-related tax breaks called, IRS Publication 970, Tax Benefits for Education. You can also find more info at the Kiplinger.com articles, Deducting Student-Loan Interest (quoted above) and Tax Breaks for Education Expenses.