Being a student with a loan can be a huge hassle, but with the student loan interest deduction you can make it less of one. With the student loan interest deduction you can use it for up to $2,500 of the interest you might have paid on your loan and it’s interest. One exception is with student loans that may be nullified, in that case you can completely exclude the total from your income.
When it comes to the interest reduction it has to be claimed on a loan that was to pay for qualified higher education programs only. On the other hand it can be one used for you, your spouse or your kids, meaning any dependents.
Claiming things such as fees, tuition, supplies, equipment, room and board and transportation can be done when claiming a loan interest reduction. It can be used for a college, university or even a vocational school. A couple other things to take into consideration when looking into the interest deduction is that the student must be at least a half-time student in a degree, certificate, or any other qualified program, as long as you are legally obligated to pay it back.
There are a few things you should realize though before claiming interest reduction that may effect whether or not you qualify. These include if another person can claim you as a dependent, you are married but file separately, for any reason you are not legally allowed to clear the loan or a relative took out the loan. All of these can mean you cannot qualify for the deduction.
Something else you may want to know before trying to qualify for the deduction is that there are some instances where costs may be incurred and have to be reduced. This occurs when there are non-taxable distributions from a Coverdell education savings account, or from a qualified tuition program, if there is interest from US Savings Bonds that are non-taxable, parts of scholarships and fellowships that are non-taxable, any kind of veterans education assistance and any non-taxable amounts (excluding gifts, bequests or inheritances). Make sure you check into any connection to any of these things before applying for a student loan interest deduction.
One last thing that should be considered is if you are paying on any loans after 2002, you have a different option in claiming payments for the reduction. This is because the “first 60 months” requirement on interest is no longer part of loan agreements after this date. This allows for deductions on voluntary interest payments, instead of only on required ones.
Having the option to save on student loans and the interest they incur, can greatly help a lot of families who want to give their children a better education and future. By taking advantage of the loan interest reduction they are allowing themselves the chance to do just that.