Is Interest on Student Loans Tax Deductible? [Student Loans]
November 26, 2007, 19:27:42

Student loan tax deductions are a reality and if your eligible you could save quite a bit of money. You should know that the interest which is to pay on a qualified student loan can be deducted. Also, you might not have to include any amount in your income if your student loan is canceled.

Here is a series of questions and answers related to this topic.

Can you deduct taxes for student loan interest?
The Internal Revenue Code, in Section 221, states that people who borrow amounts of money can deduct some of the interest that they paid on student loans. People who are eligible for this kind of deduction are those who have borrowed money to pay for their college education, your spouse of the education of a dependant. You can benefit from this deduction through an adjustment to the reported income on your tax forms. Up to $2,000 can be deducted by students who had paid the interest from the paid amounts.

How do you know if you are eligible to benefit from the deduction?
Anyone who had borrowed money with a qualified student loan is eligible. In order to benefit from this deduction, a series of requirements must be accomplished: you must have taken out a “qualified” loan and this loan should have been used to pay for your college education, a dependant’s or your spouse’s.

How can you tell what a “qualified” loan for purposes of education is?
There are many types of fees included in the category of “qualified” loans. Loans which had been taken to pay tuition, fees, living expenses, the price of books and other supplies, the transportation costs and equipment expenses are “qualified” loans. Not only federal, but also private education loans are eligible for this type of education.
However, you should know that private student loans are not automatically included in the “qualified” loans category. The interest on a private loan can be deducted if you send the private person who had loaned you a W-9S form. This is a special IRS emitted form which states that the funds have been used only to pay for education expenses.

What is the maximum amount of interest you can deduct?
Up to $2,000 from the interest rate can be deducted by students.
You should know that if your income increases (the maximum income to which the deduction can be applied is $40,000 for single filers and $60,000 for joint fillers), the amount of money you can deduce is reduced. For example, let us assume you are a single tax return filer and your income is about $55,000 or if you are a joint tax filler and your income is of $75,000, you cannot deduce your education fees.

A 1098E form which contains the amount of money paid per year will be sent by your lenders automatically to all eligible borrowers. A W-9S form must be sent to your lender if you want to deduce from a private student loan.

Another thing you should know is the time span for which the deduction can be claimed. Starting with the year 2000 onwards, the interest deduction on all student loans can be taken for the entire life of the loan.

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