Ineligible for Deduction:
To claim the student loan interest deduction yourself, you must be independent. That is, no one can claim an exemption for you on his or her tax return.
Estimated Total Deduction for Student Interest Paid in 2016:
Note: The maximum deduction is $2,500. If your estimated deduction is less, it is due to your income level. See below for information on the phaseout.
Note: Remember, this is an estimate of a tax deduction. If you're unsure what that means, you can read more on the topic below. Many factors will determine the amount you pay in taxes or, in some cases, the refund you receive. This is just one of them.
What Is the Student Loan Interest Tax Deduction?
The student loan interest tax deduction allows you to deduct interest you paid on a qualifying student loan for you, your spouse, or any person that was your dependent when you took out the loan. Like other deductions, the student loan interest deduction can help to reduce the amount of your income subject to tax. The maximum benefit is $2,500.
What Are the Income Requirements for Eligibility?
If you’re single and have a modified gross adjusted income (MAGI) of $80,000 or less, you are eligible to claim the student loan interest tax deduction. However, the amount of the deduction will be phased out if your MAGI is between $65,000 and $80,000. In other words, the nearer your MAGI is to $80,000, the less you’ll be able to deduct.
If you’re married, file taxes jointly with your spouse, and have a MAGI of $160,000 or less, you are also eligible to claim this deduction. The benefits are phased out for married taxpayers whose MAGI is between $130,000 and $160,000.
What Is Modified Gross Adjusted Income?
Unless you’re a first time taxpayer, you’re probably familiar with the term Adjusted Gross Income (AGI), which is your total income minus any specific deductions. Modified Gross Adjusted Income (MAGI) is calculated by taking AGI and adding back some of those deductions. The student loan interest deduction and tuition and fees deductions as well as IRA contributions and taxable Social Security payments, among other items, reduce AGI, but must be included in MAGI.
If you file Form 1040, MAGI is the AGI on Line 38 and does not take into account any amount on Line 33, Line 34, or Line 38. If you file Form 1040A, MAGI is the AGI on Line 22 and does not take into account any amount on Line 18 or Line 19.
For most taxpayers, AGI and MAGI will be close, if not identical, owing to the fact that the deductions that modify AGI are rare.
How Will the Student Loan Interest Tax Deduction Impact My Tax Refund?
A tax deduction reduces the amount of your income subject to tax which can, in turn, lower your tax liability. Unlike a tax credit (such as the Lifetime Learning Credit) a deduction does not directly reduce the amount you owe.
Whether you receive a tax refund will depend on a number of factors including how much you paid in taxes over the course of the year and the total deductions and credits for which you qualify.
Can I Claim the Student Loan Interest Deduction If I’m on an Income-Based Repayment Plan?
Yes. You can claim the student loan interest deduction regardless of whether you are enrolled in an income-based repayment plan.
The 1098-E Form
Lenders are required to send you a 1098-E form if you paid more than $600 in student loan interest during the year. However, even if you don’t receive a 1098-E form, you can still claim the student loan interest deduction on your federal tax return. With many student loan servicers, it’s possible to quickly find out how much you paid in interest during the year by logging into your online account.