UPDATED FOR 2021
If you’re paying down a student loan, you can deduct up to $2,500 of the interest on your tax return – and you don’t even have to itemize to get that deduction. And while there are limits how much you can deduct, millions of Americans can benefit from this valuable “above-the-line” deduction.
Despite the pandemic pause on student loans, you probably did pay some interest in the beginning of 2020. The pause started on March 13, 2020... so if you made payments before then, you paid some interest.
Plus, if you had any private student loans, you may not have gotten a pandemic break. And interest on those loans counts for this deduction, too.
So can you take this deduction on your 2020 taxes (the ones you're filing in 2021)? Let’s take a look at the requirements.
When it comes to taking deductions, the IRS likes to set up a bunch of hoops to jump through. The first is figuring out your MAGI.
MAGI equals your AGI (adjusted gross income) before you deduct the student loan interest. To qualify for the full student loan interest deduction, your MAGI must be less than $70,000 (or $140,000 if you file as Married Filing Jointly).
The deduction starts to shrink if your income is higher than that, and phases out completely if you earned more than $85,000 (or $170,000 if you file as Married Filing Jointly).
The only filing status you cannot use and still take this deduction is Married Filing Separately.
You also can't take this deduction if you're claimed as a dependent on someone else's tax return.
Your student loan has to cover only qualified education expenses such as:
Also, you have to be the one legally responsible for the loan - meaning you're the one who signed the loan docs. So if you're making the payments on someone else's student loan - even if it's your kid - you can't take this deduction.
Finally, it has to be an official student loan. So money you borrowed from family or friends - even if you're paying it back with interest - doesn't count here. And neither do loans from qualified employer plans.
The student involved in the loan has to be you, your spouse, or your dependent.
And that student has to have been enrolled at least half-time in a program leading to a degree, certificate, or other “recognized education credential” when the expenses were paid.
You can take this deduction the whole time your student loan is outstanding and you’re making interest payments.
You’ll find the amount of student loan interest you paid for the year on the Form 1098-E you get from your lender. If you paid at least $600 interest to a single lender, they have to provide the form. And if you have multiple loans with different lenders, you may get a bunch of Form 1098-Es.
So what if you paid less than $600? Contact your loan servicer to find out how much interest you paid. If you have online access to your student loan account, you may be able to find the amount of interest paid there. You don't need a 1098-E to take the deduction.
If your MAGI is under $70,000 (or $140,000 on joint returns), you get 100% of the deduction, which is the amount of interest – up to $2,500 – you paid on your student loan. If your MAGI is $85,000 or more ($170,000 or more on joint returns), you make too much money to take this deduction.
If your MAGI falls somewhere in the middle, you’re in the phase-out zone, which means you get to take only a portion of the deduction. And there is some math involved. If you’re using tax prep software, it will do the math for you. Otherwise, here’s how to do the calculation.
Here’s an examples:
Example A: Jenna files as single. They paid $2,000 in student loan interest, and has MAGI of $73,000. Jenna’s calculation looks like this:
---------------------- X $2,000 = $400
$2,000 - $400 = $1,600
Jenna’s deduction reduction came to $400, so their student loan interest deduction is $1,600.
That’s the student loan interest deduction in a nutshell. For more detailed information about the student loan interest deduction, visit the IRS website.
Have questions about your student loan interest deduction? Or any other tax questions? Feel free to ask!