The decision to get a college education is usually a costly one.
If you relied on student loans to pay for college, delayed earnings and piled up interest can turn into a big financial burden. But the government makes those loans a little bit less costly by allowing you to deduct the interest you’ve paid on your student loans.
Whether you took out student loans for yourself, a spouse, or a dependant, you can deduct up to $2,500 of the interest you paid in 2008. The student loan interest deduction is available to you if your modified adjusted gross income, which is described in the instructions for Form 1040, is less than $70,000. If you are filing a joint return, and your modified adjusted gross income is $115,000 or more, the deduction gradually decreases as your income increases. If you earn more than $145,000, the deduction is not available to you.
There are some qualifications, however. The loan must be used to pay for the expenses of a “qualified student.” (A qualified student is one who was enrolled at least half-time in a program leading to a degree, a certificate, or some other recognized educational credential.) In addition, the student must have used the loan to pay for “qualified education expenses.” These include the usual suspects, such as tuition and fees, books and supplies. But room and board, and other necessary expenses such as transportation, are also qualified education expenses. Finally, interest on a student loan is not deductible if the loan came from a relative or a qualified employer plan.
Like every tax benefit, the student loan interest deduction comes with paperwork, so check out the IRS web site to learn more on how to claim the deduction.
Looking for additional tax savings? Be sure to check out the complete archive of Daily Deductions for more tax saving opportunities.