How do student loan interest payments lower my taxes owed?
Paying back your student loan won’t generate any tax breaks, but paying the interest on that student loan can, by reducing your income tax. The max deduction is $2,500 for your 2020 tax return. This max is per return, not per taxpayer, even if both spouses on a joint return qualify for the deduction.
The student loan interest amount goes on our Student Loan Adjustment screen. When you enter the interest amount, we’ll figure the deduction for you automatically.
You must meet all of these requirements:
- You paid interest during the tax year on a qualified student loan.
- Your filing status is not married filing separately.
- Your modified adjusted gross income (MAGI) must be less than $70,000 if filing single, head of household or qualifying widow(er) (the deduction phases out at $85,000). For married filing jointly, the MAGI must be less than $140,000, and the deduction phases out at $170,000.
- You are not claimed as a dependent on someone else’s return.
Note: In times past, you had to be responsible for the loan debt and pay it back yourself in order to qualify for the deduction. But nowadays, if your parents pay back the loan, the IRS lets you claim the deduction if your parents don’t claim you as a dependent. Also remember that the deduction is for the person who took out the student loan. So, if your parents actually got the loan, but you pay it back, the deduction is theirs.
Let’s get your taxes done, student loan interest and all!
At 1040.com, we’re all about making your taxes as simple as possible, even when you have to report info like student loan interest. Plus, with our flat $25 rate for everyone, you can wave goodbye to worrying about the price going up as you file.
Also see: Tax Breaks for Students and New Grads