Many of us have borrowed lots of money in the pursuit of higher education. And many of us are probably looking at what we owe and thinking, "was it even worth it?" Every month I get an email reminding me that a ton of money has just been taken out of my account because I wanted a Masters in Fine Arts. So now that tax season has rolled in, I wanted to know, can I deduct student loans on my taxes? Because maybe there is a silver lining in all this.
While you can't claim the loan itself, you can deduct the interest that you've paid on the loan that tax year, according to USA Today. If you are in the 25% tax bracket — you're unmarried and your income was less than $65,000, or $130,000 if you are married and filing jointly — you can get a full deduction which can lower your taxable income by $2,500. Which means you will see $625 back in your wallet. Not too shabby! Even if you don't get the full deduction, if you made less than $80,000 you should see some money back.
But be aware — the money goes to whoever took out the loan. So, if the loan is in your parent's name, the cash goes to them. There is a catch though. If you are listed as a dependent on your parents' tax return, then no one gets the money.
Now that you know what the options are, you might be wondering how you go about claiming the interest on your student loans. If you paid more than $600 in interest over the last year, in February your loan servicer should have sent you a 1098-E interest statement. f you paid less than $600, don't worry. You can still request the form from your servicer, they just don't send it automatically.
Before you go thinking about all the matcha lattes you'll buy with your tax refund, there are some things you should know.
According to the Internal Revenue Service (IRS) website, there are some specific qualifications that you must meet. When it comes to the loan itself, it must have been taken out solely to pay education expenses. Those expenses include things like tuition, room and board, books and supplies, and other educational expenses like transportation. However, if you took out a loan but didn't use it for those things, then you won't be able to claim the interest. Also, you can't deduct interest on a loan that was lent to you by a family member or made under a "qualified employer plan."
There is another catch. In order to deduct your interest payments, you had to have been enrolled — at least part-time — in a "degree, certificate, or other recognized educational credential at an eligible educational institution," according to the IRS.
Remember the deadline to file your taxes is Tuesday, April 17 (just realized how soon that is). You will incur penalties for filing late, so save that date and get to it as soon as possible. If you think you are eligible to deduct your student loan interest, make sure you have your 1098-E before you do anything else, so you can check that off your list.
Student loans are a huge burden on a lot of young people these days, and while $625 doesn't seem like all that much cash in the grand scheme of how much you owe, at least it's something. It's especially great if this information is total news to you. Like finding a $20 in the pocket of your coat you haven't worn all season. So take the money and do something responsible. Or better yet, I think there's a new summer wardrobe with your name on it.