After you graduate from college you will begin repayment on your loans and you can deduct student loan payments on your personal income tax return if you meet the eligibility requirements. Students today are graduating deep in debt from their school expenses. The job market is not hiring in numbers and at a salary that makes it easy for the student who has graduated to make the payments that are now due.
Some of the payments you make will be able to be deducted from your taxable income beginning in the tax year 2010. If you paid interest of at least $2,500, all interest paid up to that amount can be taken as a deduction against your adjusted gross income.
You can deduct student loan payments if they are made on loans that are qualifying. You must have taken out the note for yourself, your spouse, or for your dependent. You must have used the proceeds to pay for expenses associated with education. The expenses associated with education that are approved include tuition and fees, room and board, and supplies needed for school.
You must have been enrolled in at least half-time status in order to count the room and board. If you were enrolled and were not considered at least half-time status, you will only be able to claim tuition, fees, and supplies.
You can deduct student loan payments that are allocated to the interest paid portion of the note. If you are paying down the principal amount only, you will be ineligible to claim the deduction. At the end of each tax year you will receive a Form 1098-E from the institution to which you make you loan payments. This form will indicate in box 1 the amount that you paid toward the interest portion of the debt. This is the amount that you can claim in the tax year that you paid.
When you decide to claim your deduction you will have to meet the Internal Revenue Service (IRS) rules to do so. In tax year 2010, your modified adjusted gross income (MAGI) cannot be greater than $75,000 if you are single. If you are married filing jointly, your MAGI is limited to $150,000.
If you or your spouse has combined income greater than these figures you will not be able to claim the interest deduction for your loans. If you are single and you make $60,000 to $75,000 your maximum amount to claim is reduced. If you are married filing jointly and your MAGI is $120,000 to $150,000 your maximum amount to claim is reduced.
You must use the long Form 1040 from the IRS or Form 1040A to claim the deduction. You are not required to itemize in order to claim the deduction because it is a write-off item against your adjusted income. A Student Loan Interest Deduction Worksheet is included in the instructions for both these IRS forms so that you can determine the allowable deductible amount. You can deduct student loan payments if you deduct the portion allocated to interest payments beginning with the 2010 tax year.