For the many of you who were in the inconvenient place of simultaneously paying taxes and paying off student loan debt in 2013, the Student Loan Interest Deduction offers a little bit of a silver lining.
The deduction allows you to deduct the student loan interest you paid in 2013, up to $2,500. Importantly, the Student Loan Interest “Deduction” is claimed as an adjustment, meaning you can take this deduction even if you don’t itemize deductions.
This means that you should look for the Student loan interest deduction in the “Adjusted Gross Income” section of Form 1040 or 1040A, rather than on Schedule A for itemized deductions (Or wherever you do adjustments if you use some tax preparation software).
And don’t worry if you don’t know exactly how much interest you paid; your loan servicer should send you a Form 1098-E (Student Loan Interest Statement), if you paid at least $600 in interest in 2013.
The loan has to have been for qualified education expenses, for you, a spouse, or someone who was your dependent at the time. That said, what matters here is who is legally obligated to pay the loan. Even if you’ve convinced your parents, your employer, or a pack of polar bears, to make payments toward your student loan debt in your place, you can still claim the student loan deduction.
You can’t deduct your interest if you file as “married filing separately” or if someone else claims you as an exemption on their return.
Of course, these simple rules aren’t all of the restrictions. I’ll explain the complex income limits in the next section, but you can get all of the rest of the details from IRS Publication 970.
Alright, if you file as a single person and have a Modified Adjusted Gross Income less than $60,000 or more than $75,000, you can — and should — skip this section entirely. Those making less than $60,000 (or $125,000 for those who are married filing jointly) can deduct all their interest up to $2,500. Those making more than $75,000 (or $155,000 for married filing jointly) can deduct nothing.
If you’re inside this band, this is the formula you’ll use:
where “interest” is the actual interest you paid or $2,500 — whichever is higher. Here are the deductions you’d get based on a few different MAGIs and levels of interest paid:
And that’s that!
Sorry that this was a pretty dry post, but it’s an important deduction that a lot of folks often forget. Please make sure to share this with anyone who may be eligible for the deduction and ask if you have any questions.
Have a great day!