Contact: Gigi Thompson Jarvis
202.822.6232, x119
gjarvis@naea.org
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For Immediate Release
Rules for Claiming the Student Loan Interest Deduction
Can Mom and Dad Get in on the Deduction?
WASHINGTON, DC (March 15, 2011) The mortgage interest deduction is cherished by many, but the much-maligned student loan is another interest deduction not to be overlooked. Finally, an up-side to the student loan! Unlike the mortgage interest deduction, student loan interest is not taken as an itemized deduction on Schedule A, Form 1040. Instead, it's a modification to adjusted gross income (an "above the line" deduction.) If you meet the requirements, you can deduct the amount of interest paid on a student loan from your total taxable income. And in some cases, parents can even reap the benefit. So, what criteria need to be met in order to take advantage of this tax saving opportunity?
The loan must be taken out solely to pay for qualified education expenses and the lender cannot be an individual—in other words, interest paid to Grandma cannot be deducted. A student who is no longer claimed as a dependent may be able to deduct the interest if his or her Modified Adjusted Gross Income (MAGI, in IRS-speak) is less than $75,000 (or $150,000 if filing a joint return) before subtracting the student loan interest. Two potential disqualifiers should be noted: taxpayers who file their return as married filing separately may not claim this deduction, and the student must be (or have been) enrolled at least half-time in a degree program.
For 2010, the maximum deductible interest per return is $2,500. If you paid $600 or more in interest on a qualified student loan during the year, you should already have received Form 1098-E from the lender. (If not, now's the time to call.) Keep in mind that refinancing the original loan for a higher amount and using even part of the loan money on other things will knock you out of the running for this deduction—for the interest to be deducted, a student loan must be used strictly for paying back educational expenses.
But what if more than $2,500 went toward payment of interest on your student loans in 2010 and you'd like to see ol' Mom and Dad be able to claim a little of that? Well, that might just work! First, be aware that parents can't claim a deduction for helping make payments on a loan that is in their child's name. The parents must be personally liable for the loan, which would include co-signers. If the child is no longer a dependent, payments made by the child are deductible by the child and payments made by the parents are deductible by the parents. The eligibility requirements are the same for parents as for students, but if those are met by all, this is a deduction the whole family can love!
Some states also allow this deduction, so to ensure you reap the maximum value for this and other deductions and credits, you may wish to consult an enrolled agent (EA) about preparing your return. EAs are licensed by the Department of the Treasury and every EA has passed competency testing on individual and business taxes and on representation of taxpayers before the IRS. EAs must adhere to a Code of Ethics and fulfill continuing education requirements to keep up-to-date on the constantly changing tax code. To find an EA in your area, go to the searchable "Find an Enrolled Agent" directory at www.naea.org.
About the National Association of Enrolled Agents (NAEA)
NAEA is the professional society that supports its members with resources, education and networking and by representing their interests to government, business and the general public. Find out more about NAEA and becoming an enrolled agent at www.naea.org.