Student Loan Interest Deduction
Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily pre-paid interest payments. You can claim a deduction for the interest you paid if you meet certain conditions.
The new tax law didn’t change the student loan interest deduction. You may still take a deduction for interest you paid on a student loan up to $2,500. Note: The income limitations are adjusted annually for inflation.
Note: The new tax law did change the income exclusion for the discharge of student loan debt to include within the exclusion certain discharges because of death or disability.
If your modified adjusted gross income (MAGI) is less than $80,000 ($165,000 if filing a joint tax return), you can take a deduction for interest you paid during the year on a qualified student loan (also known as an education loan).
The loan proceeds must be used to pay for qualified education expenses for yourself, spouse, or dependent at an eligible education institution. The deduction is limited to $2,500 and will be phased out once your MAGI exceeds $65,000 (or $135,000 if filing a joint tax return).
For a more detailed explanation of the requirements to take this deduction, see IRS Publication 970, Tax Benefits for Education.
The new tax law didn’t change the student loan interest deduction. You may still take a deduction for interest you paid on a student loan up to $2,500. Note: The income limitations are adjusted annually for inflation.
How will this affect me?
In 2018, Isabella paid $3,000 in student loan interest. Isabella is legally obligated to make the student loan payments. She used the loan to pay for tuition, room and board, and supplies to attend college full time between the years 2013 and 2017. She graduated with a bachelor’s degree in economics in 2017. Isabella is married and files a joint tax return with her spouse. Their joint MAGI for 2018 is $130,000. Isabella can deduct $2,500 for student loan interest on her 2018 joint tax return.
For examples of phasing out the deduction based on MAGI, see IRS Publication 970, Tax Benefits for Education.