Tax Topic 456

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#6457

Tax Topic 456

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Topic 456 – Student Loan Interest Deduction
Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily pre-paid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phase out when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.

You claim this deduction as an adjustment to income, so you don’t need to itemize your deductions on Form 1040, Schedule A (PDF), Itemized Deductions.

You can claim the deduction if all of the following apply:

You paid interest on a qualified student loan in tax year 2016;
You’re legally obligated to pay interest on a qualified student loan;
Your filing status isn’t married filing separately;
Your MAGI is less than a specified amount which is set annually; and
You or your spouse, if filing jointly, can’t be claimed as dependents on someone else’s return.
A qualified student loan is a loan you took out solely to pay qualified higher education expenses that were:

For you, your spouse, or a person who was your dependent when you took out the loan;
For education provided during an academic period for an eligible student; and
Paid or incurred within a reasonable period of time before or after you took out the loan.
See Publication 970, Tax Benefits for Education, and the Form 1040 Instructions to determine if your expenses qualify.

If you file a Form 2555 (PDF), Foreign Earned Income, Form 2555-EZ (PDF), Foreign Earned Income Exclusion, or Form 4563 (PDF), Exclusion of Income for Bona Fide Residents of American Samoa, or if you exclude income from sources inside Puerto Rico, refer to Worksheet 4-1, Student Loan Interest Deduction Worksheet in Publication 970, instead of the worksheet in the Form 1040 Instructions.

If you paid $600 or more of interest on a qualified student loan during the year, you’ll receive a Form 1098-E (PDF), Student Loan Interest Statement, from the entity to which you paid the student loan interest.

For more information about the student loan interest deduction and how your MAGI affects the deduction amount, refer to Publication 970, and Can I Claim a Deduction for Student Loan Interest?

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