What are the IRS rules pertaining to the student loan interest deduction in 2015 and 2016?
The short answer is that you may deduct payments of student loan interest made during the taxpayer, but that is subject to certain limits that begin taking effect when a taxpayer reaches a higher income bracket. The most important limit for the student loan interest deduction is that the maximum amount of student loan interest you can deduct each year is $2,500 on your tax returns. The deduction is phased out if your adjusted gross income (AGI) exceeds certain levels.
What is a Qualified Education Loan?
The first IRS test is that the interest must be for a “qualified education loan,” which means a debt incurred to pay tuition, room and board, and related expenses to attend a post-high school educational institution. Certain post-graduate programs also qualify but it is always important to check with the education institution before beginning a program. This broad definition even allows the student loan interest deduction to people who attended certain vocational schools.
For other types of students, a student loan that is taken out for an internship or residency program leading to a degree or certificate awarded by an institution of higher education, hospital, or health care facility offering post-graduate training can qualify under the IRS regulations for the student loan interest deduction. To get the deduction, it does no matter when the loan was taken out or whether interest payments made in earlier years on the loan were deductible or not.
Deducting Job Search Expenses on Tax Return
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 $80,000 ($160,000 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. 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 2014.
Student Loan Interest Deduction Information for 2015 and 2016
The deduction is phased out for taxpayers who are married filing jointly with AGI between $130,000 and $160,000. The limit is $65,000 and $80,000 for single filers. The student loan deduction is completely unavailable for taxpayers with AGI of $160,000 ($80,000 for single filers) or more.
For 2015, the deduction was phased out for taxpayers who were married filing jointly with AGI between $125,000 and $155,000 The limit is $60,000 and $75,000 for single filers. The deduction was unavailable for taxpayers with AGI of $155,000 ($75,000 for single filers) or more.
Married taxpayers must file jointly to claim this deduction and cannot file married but single. No deduction is allowed to a taxpayer who can be claimed as a dependent on another’s return.
If a parent is paying for the college education of a child whom the parent is claiming as a dependent, the interest deduction is only available for interest the parent pays on a qualifying loan. There is not any student loan interest deduction for any interest the child/student may pay on a loan the student may have taken out.
The student loan interest deduction is easier to take that most tax deductions because the deduction is taken “above the line.” In other words, it’s subtracted from gross income to determine AGI. Thus, it’s available even to taxpayers who don’t itemize deductions and are subject to special limitations.
Other requirements for student loan interest deduction.
- The interest must be on funds that are actually borrowed to cover qualified education costs of the taxpayer or his spouse or dependent. The student must be a degree candidate carrying at least half the normal full-time workload. Also, the education expenses must be paid or incurred within a reasonable time before or after the loan is taken out.
- Taxpayers must keep records to verify qualifying expenditures that the student loans are used on Documenting a tuition expense isn’t likely to pose a problem because the school will issue a form Other education expenses that the loan is used for will need supporting receipts or documentation.
- Student who live off campus should maintain records of room and board expenses, especially when there are complicating factors such as roommates. There are IRS equations that can help determine what the exact expenses for each student were when they live with roommates and want to take the student loan interest deduction.
Student Loan Interest Deduction
To determine your eligibility and claim education tax benefits, including the Student Loan Interest Deduction, you must file a federal income tax return. To calculate your deduction, use IRS Form 1040 (Line 33) or Form 1040A (Line 18), Student Loan Interest Deduction, at www.irs.gov.
2015 Form 1098-E Tax Statement
A Form 1098-E Student Loan Interest Statement shows the amount of interest you paid on your eligible student loans during the previous tax year. You may be able to deduct interest paid on your Federal tax return, which could reduce your taxable income.
Loan customers who have paid $600 or more in eligible student loan interest during the tax year are automatically issued a Form 1098-E. Form 1098-E is delivered by mail, unless you previously signed up for electronic delivery. Tax information is generally updated online in mid-January and is available for the entire year, for two consecutive tax years.
To file your taxes, you don’t need a physical copy of your 1098-E. Check with a tax advisor to determine how much of the interest paid on your student loans in the previous year is tax deductible. The interest on payments received by 5:00 p.m. Central time on December 31, 2015 will be included on your 2015 1098-E. Interest on payments received or scheduled after that time will appear on next year’s statements.