Student loan interest deduction
Student loan interest deductions allow a deduction of up to $2,500 on interest that you have paid for a student loan. If the student loan isn’t allowed because of nullification, you are allowed to exclude the amount from your income.
Student loans are eligible for deduction if the loan was solely to pay for a qualified higher education program. Loans can be taken for yourself, your spouse or your kids, or anyone who is dependent upon you for further studies.
Tax deductions are claimable on the student loan if you use the money from the loan on college or vocational school expenses such as tuition, fees, books, supplies, equipment, room and board, transportation. Some other requirements necessary to use the benefit are: you or your dependent should be at least a half-time student in a degree, certificate, or other qualified program; and you should be legally obligated to make the repayment.
Tax deductions on the student loan are not claimable in the case that:
• More than one taxpayer claims an exemption for you as a dependent.
• The person claiming the deduction is married and is filing a separate return from a spouse.
• The person claiming is not legally allowed to clear the loan.
• Initially the loan was made by a relative.
Also, the costs you incur have to be reduced by:
• Non–taxable distributions from a Coverdell education savings account
• Non-taxable distributions from a qualified tuition program
• Interest from US Savings Bond that is non–taxable because it is used to pay qualified higher education expenses,
• The part of scholarships and fellowships that is non-taxable
• Veterans educational assistance, and
• Any other non–taxable payments (other than gifts, bequests, or inheritances) received for educational expenses.
Always remember that if you are paying your student loans after 2002, the “first 60 months” requirement on interest paid is discontinued, and deductions are permissible for voluntary interest payments, rather than only required payments as in the previous years. Additionally, make the deduction on either Form 1040 or Form 1040A.