Tax Break

Student loans provide a way for many students and parents to finance the rapidly rising costs of college education. These loans also contain a number of important advantages and one of those is a potential tax break. Such a tax break can certainly help to lower the total cost of financing a college education.

In order to qualify for the tax break, certain requirements must be met in order to deduct the interest from student loans on federal tax returns. Keep in mind that it is always a good idea to consult with your tax advisor to find out whether such a tax break is available to you, below is a list of a few IRS rules that can help you in possibly getting started understanding what these deductions can mean for you:

Amount of Deduction

Generally, the maximum deductible interest on a qualified student loan is $2,500 per return. Factors that can influence this depend on income and filing status.

Filing Status

If you file your return as “married filing separately” you may not be able to deduct student loan interest. Those who file “married filing jointly”, “single,” “head of household,” or “qualifying widow or widower” may be eligible to deduct student loan interest.

Limitations on Income

Be aware that some income restrictions may also apply. Taxpayers who have a modified adjusted gross income under a specified amount may be able to deduct the full $2,500 of student loan interest. Typically, the deduction is reduced as the modified adjusted gross income rises. This means that if you have a modified adjusted gross income over a certain amount, you might not be eligible to take any of the student interest deduction.

It is also important to know that students who are not longer dependent and who take out student loans that are in their own name may be able to deduct the interest. If the loan was taken out in the parent’s name; the interest on the loan may only be deducted by the parents for as long as the student was a dependent of the parent during the time period when the loan was received.

Depending on your situation other restrictions may apply, so it is always a good idea to check with your tax advisor before actually deducting the interest.

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