At the turn of every new year comes a big opportunity for all Americans: the chance to receive a hefty check from the federal government. How significant of a check that is — if, in fact, the government owes you money and not the other way around — depends in large part on just how many deductions you list while filing your taxes. Because there are a wide range of deductions a person can be eligible for, the same questions get asked every year: Can you write off your student loans? Can you deduct moving expenses? How about work expenses?
The first of those questions is undoubtedly easier to answer then most. Fortunately, for everyone who has student loans to their name — which, by the way, a majority of Americans leaving college do — you can use the amount you pay back in loans to your advantage while filing taxes. There's a catch though.
How Does It Work?
First, you can only deduct the amount of interest you paid back to a lender during a given year, not the total amount of money you spent paying back a loan, according to IRS rules.
At the end of every year it's common for public and private lenders to send borrowers a 1098-E, a form which shows how much in interest the borrow paid during a calendar year.
Borrowers can than take the amount listed on the form — or, forms, if a person has borrowed from multiple lenders — and deduct the amount of total interest paid during a year from that year's taxable income.
This means that if you made $50,000 in 2017, and you paid $1,000 in student loan interest during that year, you can reduce your taxable income to $49,000, which increases the chances of a person being owed money by the government. (since the taxable income will have now been lowered to an amount under the gross income that had been gradually taxed, paycheck by paycheck, during 2017).
Got it? Good.
What Are The Limits
Here's another catch: The student loan interest deduction has a limit of $2,500, per the IRS. That means that if even you paid $3,500 in interest during 2017, out of your gross income of $50,000, your taxable income will still only be reduced to $47,500 through the student loan deduction.
And then there's another stipulation.
You can only claim the full benefit of the $2,500 deduction if, as a single filer, your adjusted gross income (AGI) is lower than $65,000, according to Forbes. If your AGI is above $80,000, and you're a single filer, you can't deduct any student loan interest paid from your taxable income at all, according to Intuit, the makers of tax filing software Turbo Tax.
If you're filing as a married couple, and your AGI is above $160,000, you can't deduct student loan interest paid, either, according to Intuit.
Will The Student Loan Deduction Stick Around After Tax Reform?
Because Republicans in Congress accomplished passing a sweeping tax reform law, there are many changes that will affect the way Americans file taxes next year, during the 2019 tax season.
None of those changes, though, will affect the student loan interest deduction.
Though there were proposals to remove the student loan interest deduction, the final draft of the bill, which was eventually signed by President Donald Trump, included the deduction, with no changes to the amount that can be deducted.
This means that you can deduct student loan interest from your taxable income this year and the following year, all the way up until you're done paying your loans.
Just kidding, no one will ever be done paying their student loans.