Student loan borrowers can get a tax break worth up to $2,500 – Review the requirements to get this amount on your IRS taxes

If you made student loan payments last year, you might be eligible for a tax break. The student loan interest deduction allows you to reduce your taxable income by the interest you paid on your loans. Here’s a simple breakdown of how it works and what you need to know. 

Understanding the student loan interest deduction  

The student loan interest deduction lets taxpayers deduct up to $2,500 or the actual interest paid during the tax year, whichever is lower. This applies to both federal and private student loans used for higher education expenses. The loan can be for yourself, your spouse, or a dependent.  

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Income limits for eligibility  

Not everyone can claim the full deduction. Your eligibility depends on your income; 

1. For 2024, single taxpayers with a modified adjusted gross income (MAGI) between $80,000 and $95,000 will see a reduced deduction. 
2. Married couples filing jointly with a MAGI between $165,000 and $195,000 will also face a reduction. 
3. If your income exceeds these limits, you cannot claim the deduction. 

Calculating modified adjusted gross income (MAGI)  

Your MAGI is calculated by adding certain items to your adjusted gross income (AGI). These include: 

• Contributions to independent retirement accounts (IRAs).  
• Student loan interest paid. 
• Foreign earned income. 
• Other credits and deductions. 

The IRS provides a worksheet to help you calculate your MAGI and determine how much you can deduct. 

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Reporting student loan interest  

If you paid at least $600 in student loan interest during the tax year, your loan servicer will send you a Form 1098-E. This form shows the amount of interest you paid, which you’ll report to the IRS. 

– If you paid less than $600, contact your loan servicer to get the exact amount of interest paid.  

Possible changes to the deduction  

The student loan interest deduction has been available since 1997, but there’s a chance it could be eliminated in the future. Here’s why:  

– Under the Trump administration, there were discussions about eliminating this deduction to help offset tax cuts for corporations and households.  

– A Republican Congressional memo estimated that eliminating the deduction could save the federal government $30 billion over 10 years.  

– As of now, the deduction is still available, and eligible borrowers can claim it when filing their taxes.  

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Key points to remember 

1. Deduct up to $2,500: You can reduce your taxable income by the amount of student loan interest you paid, up to $2,500.  

2. Check your income: Higher earners may not qualify for the full deduction or any deduction at all.  

3. Use Form 1098-E: Your loan servicer will provide this form if you paid at least $600 in interest.  

4. Stay informed: The deduction could be eliminated in the future, so take advantage of it while it’s still available.  

By understanding the student loan interest deduction, you can potentially save money on your taxes. Make sure to check your eligibility and gather the necessary documents before filing your tax return.