Some countries offer tax breaks for students who are paying off student loans that charge interest. The United States is one of these, and certain students qualify to take a student loan interest deduction each year they owe interest on loans considered eligible, and as long as they meet other requirements. This deduction is claimed on a yearly income tax return filed with the Internal Revenue Service and people do not need to itemize their deductions in order to claim it. The amount taken, which, though subject to change, can be up to $2500 US Dollars (USD) yearly, is directly subtracted from income earned for the year and thus lowers taxable income.
There are numerous requirements for what is eligible to claim a student loan interest deduction. These begin with income and status. A person must make no more than $70,000 USD if single, or $145,000 USD if a joint return is filed. The taxpayer must be independent, meaning no parent or guardian can claim this person on a return. The loan taken out can either be for the self, a spouse or a dependent, but the person who is directly responsible for the loan is the only one who can claim a deduction for interest. A child can’t claim interest for a loan taken out for him by parents.
The student loans that count for a student loan interest deduction exclude loans from employers or from any relatives to virtually any degree or relationship. They can be either private or public loans, but they have to be taken specifically to pay for school tuition, or educational or associated living expenses, and this may need to be documented if tuition and expenses are low and loans are high. Moreover, loans usually have to be borrowed when a student attends a recognized higher education institution at least half-time. The student loan interest deduction can’t be taken in years the student doesn’t owe interest, like during times of deferment or active enrollment in school.
The basic instructions for claiming a student loan interest deduction may vary depending on the loan. Essentially, taxpayers claim the amount of interest they pay in a given year, up to $2500 US Dollars (USD). As income increases, the amount that can be claimed may decrease. Using simple worksheets or forms that are easily accessible with the 1040 and 1040A, the tax filer determines exactly how much of the loan’s interest qualifies for any given year. Provided the filer’s income remains within eligible limits, the deduction can be taken each year until the loan is repaid.
Other countries and individual states may have some form of student loan interest deduction, too. The best way of determining whether these exist is to check with regional franchise or tax boards. It also makes sense to read yearly tax filing instructions because these often provide information about useful deductions that can save people money.