How to Apply for the Student Loan Interest Deduction

By eHow Personal Finance Editor

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Claim a deduction for interest paid on a student loan. A full deduction of $1,500 can save $225, $420 or more in federal income taxes, plus more on state taxes.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

Determine Your Eligibility

Step1
Verify that you are not anyone's dependent.
Step2
Verify that you are not filing under the "married filing separately" status.
Step3
Verify that your student loan was not from a relative or from a related trust, partnership or corporation.
Step4
Make sure that when you got the loan, you were a student taking at least half a full load in a program designed to lead to a degree, certificate or credential.
Step5
Make sure the interest payment you made during the tax year was within the first 60 months of required payments.
Step6
Make sure you have the primary responsibility to repay the loan.

Calculate the Deduction

Step1
Add up all the interest on qualifying student loans that you paid during the tax year. The maximum possible deduction for tax year 1999 is $1,500.
Step2
Determine your adjusted gross income and compare it to the income thresholds that begin the phase-out of this deduction. If you're married filing jointly, the threshold is $60,000. For single, head of household or qualifying widow or widower, it is $40,000.
Step3
Calculate how much your income is over the income threshold. Round up to the next thousand dollars - $1,001 is rounded up to $2,000.
Step4
Subtract $100 from your possible deduction for every $1,000 your income is over the threshold. If your income isn't over the threshold, subtract zero.
Step5
Claim the deduction on line 24 of the 1040 or line 16 of the 1040A.

Tips & Warnings

  • Parents usually cannot take this deduction for their children's student loans even if they pay the interest, unless they are legally responsible for the loan repayment.
  • Remember that only the interest you pay during the first five years of loan repayment is eligible for this deduction.
  • The student loans don't need to have been used for tuition. Room and board qualifies, as does any ordinary or necessary expense while attending an eligible institution.

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eHow Article: How to Apply for the Student Loan Interest Deduction

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