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.
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Feature |
Description |
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Maximum benefit |
You can reduce your income subject to tax by up to $2,500. |
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Loan qualifications |
The student loan:
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Student qualifications |
The student must be:
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The interest paid can be deducted during the remaining period of the student loan. |
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Limit on |
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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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