Student Loan Interest Deduction: Your Guide for 2019

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The student loan interest deduction allows you to take up to $2,500 off your taxable income. Whether you qualify will depend on if you paid interest on student loans in 2018 and your modified adjusted gross income (MAGI) level. Before you file your taxes, you should look over all the deductions you qualify for, as they can lower the amount you owe to the IRS and increase your tax refund.

What Is the Student Loan Interest Deduction?

The student loan interest deduction is a tax deduction that U.S. tax filers may qualify for based on their paid interest on post-secondary student loans during the tax year. The post-secondary education loans must have been taken out to pay for qualified educational expenses for either the taxpayer, the taxpayer's spouse or the taxpayer's dependent. Qualified educational expenses include tuition, fees, supplies and equipment needed for coursework. Room and board, insurance, health fees and transportation costs do not qualify under this program.

To receive this deduction, you must be legally obligated to repay the loan. If your child has the loan in his/her name and you don't claim him/her as a dependent, then you can't file for the deduction. You (or your spouse, if filing jointly) also can't be claimed as a dependent on anyone's tax return to qualify. And if you are married but filing separately, you won't be able to get your student loan interest deducted. If you're still unsure about whether you can receive this deduction, use the Interactive Tax Assistant tool offered by the IRS to see if you qualify.

How Much Student Loan Interest Can You Deduct?

The IRS allows you to subtract up to $2,500 of your interest payments from your taxable income. The amount you will actually be able to deduct will depend on the amount of interest you paid on your student loans in the tax year and the income you earned. Your lender should send you a Form 1098-E, if you've paid more than $600 in interest, which will state the amount of interest you paid that year. If you've paid less than $600, you can ask your servicer for the form.

If you earned less than $65,000 as a single filer or $135,000 as a married joint filer during the tax year, you can deduct the full amount of $2,500. However, if you paid less than $2,500 in interest, you'll only be able to deduct the amount you paid. If you earned between $65,000 and $80,000 as a single filer or between $135,000 and $165,000 as a joint filer, you'll qualify for a reduced amount of interest deduction less than $2,500. And if you earned more than $80,000 as a single filer or $165,000 as a joint filer, you won't qualify for any student loan interest deduction.

Tax Filing StatusPhaseout BeginsPhaseout Ends
Single$65,000$80,000
Head of household$65,000$80,000
Qualifying widow(er)$65,000$80,000
Married filing jointly$135,000$165,000

For the 2019 tax year, the Fed has increased income thresholds, meaning that more borrowers will qualify for the student loan interest deduction for taxes filed in 2020.

Tax Filing StatusPhaseout BeginsPhaseout Ends
Single$70,000$85,000
Head of household$70,000$85,000
Qualifying widow(er)$70,000$85,000
Married filing jointly$140,000$170,000

How to File for the Student Loan Interest Deduction

You can file your taxes until Monday, April 15, 2019. To file, use an online tax software, especially if your taxes are simple with few sources of income, or hire a tax preparation service or person. If you paid more than $600 in interest during the tax year, you should receive a Form 1098-E, which states the amount of interest you paid during the tax year. If you paid less than $600, you can still qualify for the deduction; just ask your student loan servicer to send you the document.

Education Tax Credits

There are two other education tax opportunities that you may be able to take advantage of if you had education expenses during the tax year: the American opportunity tax credit and the lifetime learning credit. Unfortunately, you can't claim both of these credits, but you can file for either credit in addition to the student loan interest deduction. You can use the IRS Interactive Tax Assistant tool to see if you're eligible for an education credit.

To claim either credit, you must receive a Form 1098-T, Tuition Statement from your or your dependent's educational institution, and complete the Form 8863 and attach it to your Form 1040.

American Opportunity Tax Credit

The American opportunity tax credit allows students or those who claim them as dependents to take up to $2,500 in tax credits from the cost of tuition, fees and course materials per eligible student, per year. This credit applies to only the first four years of post-secondary education, and the student must be enrolled at least half-time. The credit covers the first $2,000 of qualified costs and 25% of the next $2,000. Also, 40% of the tax credit is refundable, so you can receive up to $1,000 per eligible student as a tax refund, even if you don't owe any taxes. Similar to the student loan interest deduction, whether you qualify for the credit and for what amount is also based on your income.

Lifetime Learning Credit

The lifetime learning credit (LLC) is worth up to $2,000 per tax return for qualified tuition and related expenses. You can claim an LLC if you or your dependent or a third party pay qualified education expenses for higher education for an eligible student at an eligible educational institution. The eligible student must be you, your spouse or a dependent you listed on your tax return. The LLC covers 20% of the first $10,000 of qualified education expenses or a maximum of $2,000 per return and is not refundable. Also, whether you qualify for the fullcredit or a reduced version will be based on your MAGI.

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