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By Transamerica / Jan 7, 2015

Are Student Loans Tax Deductible?

Three College Students Talking on Campus

For many people, college can be one of the most memorable experiences in life. College can also be very pricey. As a result, prospective students, parents and others seeking higher education, take out student loans. If you have student loans, you may be eligible to deduct their interest from your taxes. Just keep in mind that it is only the interest, and not the loan itself, that is deductible.

As of 2014, the maximum amount you can deduct for student loan interest on your taxes is $2,500.

What is the tax deduction for student loans designed to do?

The Taxpayer Relief Act, passed in 1997, was established to create tax breaks for U.S. taxpayers, and includes a tax deduction for student loans. Keep in mind that if you have student loans out in your name, you can only claim the deduction if no one lists you as a dependent on their tax forms.

To qualify for a student loan tax deduction, know your MAGI.

The IRS uses a metric called the modified adjusted gross income (MAGI) to determine a person’s eligibility for certain tax deductions, credits and retirement plans.

In order to qualify for a tax deduction, you should first calculate your adjusted gross income to include your current tax deductions. This will give you your modified adjusted gross income (MAGI), which is considered when calculating deductions.

If you are single, a head of household, or a qualified widow or widower with a MAGI up to $75,000, you can qualify for a student loan tax deduction. For married couples, their MAGI can be no more than $155,000 to qualify. The higher your MAGI, the less you will be allowed to claim as a tax deduction.

What about the loan itself? Does it qualify for a tax deduction?

To qualify for a tax deduction, the student loan must apply to anything related to higher education. Before you embark on writing off the interest on your student loan, you should be aware of the following:

  • The loan must be taken out exclusively for educational purposes.
  • The loan cannot come from a family member or relative.
  • You cannot deduct interest on the loan if it comes from your employer.

Does my school qualify for a student loan tax deduction?

According to the IRS, to qualify for a student loan tax deduction, you must attend or have attended a learning institution that is recognized by the Department of Education. These learning institutions can include:

  • Universities
  • Community colleges
  • Vocational schools

Some nontraditional schools do not qualify for a student loan tax deduction, so double-check to make sure that the learning institution you’re working with falls under this category.

Future preparations.

College is not just a rite of passage—it can create opportunities which can lead to a complete and fulfilling life. While higher learning can be expensive, through tax deductions, the financial hit of a degree doesn’t have to be incurred full-faced if you are adequately prepared.

Transamerica and its agents and representatives do not provide personal tax or legal advice. The information contained in this article is for informational purposes and should not be construed as legal or tax advice. For legal or tax advice concerning your situation, please consult with and rely on your attorney or professional tax advisor.

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