Student loan interest is still deductible from income It is possible to claim the student loan interest deduction "above the line" as an adjustment to income. You have the option of taking it without itemizing or in addition to the standard deduction. It is deducted on line 21 of Schedule 1 of the 2021 Form 1040's "Adjustments to Income" section. The net effect is to lower your adjusted gross income (AGI), which lowers your taxable income and may also make you eligible for more tax deductions and credits.
Do You Qualify?
You may deduct the interest on student loans that you paid yourself if you file as a single person, the head of your household, or a qualified widow(er). If you and your partner file a joint tax return, you both have the option of deducting interest on loans that you or they paid for together. If you file a separate married return or are claimed as a dependent on another person's tax return, you are not eligible to claim the student loan interest deduction. It would also be best if you were required by law to repay the loan. You or your spouse must sign the loan if you file a joint tax return. Even if you make the payments on your child's behalf, you cannot claim the deduction if they take out the loan in their own name and are the obligor. Only they have the authority to do this, assuming you are not claiming them as a dependent. Recommendation: Taxpayers can use an interactive tool provided by the IRS to see if they qualify for the student loan interest deduction. You'll need your income details, such as your AGI, your filing status, and a list of the expenses that the loan or loans covered in order to complete it, which takes around 10 minutes.Student Loans Eligible
Any loans for you, your spouse, or a dependent must be qualified student loans. Private loans from family and friends and loans from qualified employer plans do not count. The loan proceeds must be entirely dedicated to qualified education expenses. If you borrow $10,000 but only put $9,000 of it toward qualifying expenses and "cash-out" the other $1,000, you won't be able to take the deduction. Included in qualified educational costs are:- Tuition
- meals and lodging
- Books, materials, and gear
- Transportation
- Fees
How Much of a Deduction is Made?
As of the 2021 tax year, you can claim the maximum student loan interest deduction is $2,500, though it may be less. Your income may put a cap on it. If your modified adjusted gross income (MAGI) is too high, the deduction is gradually eliminated and is reduced for taxpayers with MAGIs in a specific phaseout range. When it was introduced in Congress in June 2019, the Student Loan Interest Deduction Act of 2019 sought to increase the deduction to $5,000, or $10,000 for married taxpayers filing joint returns. That bill, however, came to a standstill in the House Committee on Ways and Means. Important: The American Rescue Plan Act of 2021's provisions state that any student loan debt is forgiven between January 1, 2021, and December 31, 2025, and is not subject to taxes.Phasing out the deduction for student loan interest
Depending on how you filed, there are different phaseout ranges for this tax credit. As of the tax year 2020, when you would have submitted your return in 2021, they were: Filing Status Phaseout Begins Phaseout Ends Married Filing Jointly $140,000 $170,000 Qualifying Widow(er) $70,000 $85,000 Head of Household $70,000 $85,000 Single $70,000 $85,000 As a result of the inflation adjustment, these numbers may vary slightly from year to year. The IRS typically announces inflation adjustments at the tax year's conclusion. By the middle of December 2021, these thresholds were still valid. You are qualified to deduct up to $2,500 in student loan interest or the actual amount of interest you paid, whichever is less, if your MAGI is below the threshold at which the phaseout begins. If your MAGI falls within the phaseout range—for instance, $70,000 to $85,000 if you're single—your limit is prorated. Unfortunately, if your income exceeds the threshold where the phaseout ends, you cannot deduct any of the interest on your student loans.Methods for Calculating Deductions
Your MAGI is the first step in calculating your deduction. This is your crucial adjusted gross income (AGI) before other tax deductions, such as the student loan interest deduction you're hoping to be eligible for, are taken into account. This cannot be subtracted before determining your MAGI. That would be equivalent to deducting the same expense twice for tax purposes. If you used any of the following exclusions or deductions—which are not very common—you must also add them back:- The exclusion of foreign earned income
- The exclusion of foreign housing
- The housing deduction for foreigners
American Samoa or Puerto Rico residents' income exclusions
Most taxpayers will discover that their MAGIs are similar to, if not the same, their AGIs. You might only need to add back the deduction itself in the case of the student loan interest deduction. After calculating MAGI, reduce it by $15,000 ($30,000 if married and filing jointly). Then, round the result to three decimal places. If it is greater than 1.000, use that number in the calculation. Use it exactly as is if it's less than 1.000. Then, multiply the decimal by the amount of interest paid on your student loans up to $2,500. 2,500 dollars or less will be the answer. To figure out how much interest you paid, you won't need to sift through all of your student loan statements for the year. After the first year, your lender should send you a Form 1098-E. Box 1 of the 2021 version of the form contains information about the interest you paid.Question and Answer Sheets (FAQs)
How much can you deduct for student loan interest in total?
Even if you paid more interest on your student loans, you could only deduct up to $2,500 annually.Can parents deduct the interest on student loans if they assist with payments?
If parents assist their children in paying off student loans, they cannot deduct this expense from their taxes. In actuality, the student is the debt owner because they are the borrower, and their information is on the loan documentation.