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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

Your 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. you, your spouse, or your dependent, and
  2. enrolled at least half-time in a degree program



Time limit on
deduction
You can deduct interest paid during the remaining period of your 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 you took out to pay the qualified higher education expenses for any of the following individuals:

  • Yourself or your spouse.
  • Any person who was your dependent when the loan was taken out.
  • Any person you could have claimed as a dependent for the year the loan was taken out except if:
    • The person filed a joint return,
    • The person had gross income that was equal to or more than the exemption amount for that year, or
    • You, or your 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.


According to Publication 970:

Related Person.  You cannot deduct interest on a loan you get from a related person.  Related persons include:

  • Your spouse,
  • Your brothers and sisters,
  • Your half brothers and half sisters,
  • Your ancestors (parents, grandparents, etc.),
  • Your 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:

  1. Adjustments Menu
  2. 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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