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Student Loan Interest Deduction (Form 1098-E)

A deduction of up to $2,500 is allowed for interest paid by the taxpayer during the year on qualified student loans. Deductible interest includes voluntary payments made during a period when interest payments are not yet required, interest or refinanced and consolidated loans, and capitalized interest.To help you figure your student loan interest deduction, you should receive Form 1098-E. Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more.

You can take this deduction only if all of the following apply:

  • You paid interest on a qualified student loan.
  • Your filing status is any status except married filing separately.
  • Your modified adjusted gross income (AGI) is less than: $80,000 if single, head of household, or qualifying widow(er); $160,000 if married filing jointly.
  • You, or your spouse if filing jointly, are not claimed as a dependent on someone's (such as your parent's) tax return.

Exception. Publication 970 provides a chart to figure your student loan interest deduction if you file Form 2555, Form 2555-EZ, or Form 4563, or you exclude income from sources within Puerto Rico.

Feature

Description

Maximum benefit

You can reduce your income subject to tax by up to $2,500.

Loan qualifications

The student loan:

  • must have been taken out solely to pay qualified education expenses, and
  • cannot be from a related person or made under a qualified employer plan.

Student qualifications

The student must be:

  1. the primary taxpayer, spouse, or dependent, and
  2. enrolled at least half-time in a degree program



Time limit on
deduction
The interest paid can be deducted during the remaining period of the student loan.

Limit on
modified
adjusted gross
income (MAGI)
  • $160,000 if married filing a joint return;
  • $80,000 if single, head of household, or qualifying widow(er).

Qualified student loan. A qualified student loan is any loan taken out to pay the qualified higher education expenses for any of the following individuals:

  • The primary taxpayer or their spouse.
  • Any person who was your dependent when the loan was taken out.
  • Any person they could have claimed as a dependent for the year the loan was taken out except if:
    • That person filed a joint return,
    • That person had gross income that was equal to or more than the exemption amount for that year, or
    • The taxpayer, or the spouse if filing jointly, could be claimed as a dependent on someone else's return.

The person for whom the expenses were paid must have been an eligible student. However, a loan is not a qualified student loan if (a) any of the proceeds were used for other purposes, or (b) the loan was from either a related person or a person who borrowed the proceeds under a qualified employer plan or a contract purchased under such a plan.

As indicated in Publication 970, interest on a loan from a related person cannot be deducted. For a taxpayer, related persons include:

  • Their spouse,
  • Their siblings (brothers and sisters),
  • Their half brothers and half sisters,
  • Their ancestors (parents, grandparents, etc.),
  • Their lineal descendants (children, grandchildren, etc.), and
  • Certain corporations, partnerships, trusts, and exempt organizations.

To enter Student Loan Interest in TaxSlayer Pro from the Main Menu of the Tax Return (Form 1040) select:

  • Adjustments Menu
  • Student Loan Interest Deduction

NOTE: This is a guide on entering Student Loan Interest into the TaxSlayer Pro program. This is not intended as tax advice.

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