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What is the Student Loan Interest Deduction?

Paying off student loans generally is a bear, however the one good factor is you could deduct a few of the curiosity paid to cut back your tax legal responsibility

Last Updated: December 05, 2021

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Quick Summary

  • You can deduct as much as $2,500 when submitting taxes in case you paid curiosity to a certified student loan, alongside different standards
  • You can’t use the deduction if you’re submitting as: married, submitting individually, make over sure revenue thresholds, or are claimed as a depending on another person’s tax return
  • The $2,500 quantity you’ll be able to deduct additionally regularly decreases in case you hit a sure phase-out MAGI threshold
  • This deduction is taken into account ‘above-the-line’ and can be utilized in each your common revenue taxes and the choice minimal tax system

Do I Qualify?

Here’s a excessive stage record of {qualifications}:

  • You truly paid curiosity on a certified student loan (most of your greater stage training loans are certified)
  • You or your partner should not claimed as a depending on anybody else’s tax return
  • Your Modified Adjusted Gross Income (MAGI) is lower than a specific amount (see beneath)
  • You are submitting as ‘Single’ or ‘Married, Filing Jointly’.
    >Married, Filing Separately doesn’t enable the SLI deduction. No one is aware of why.

How a lot can I deduct?

Filing Status Max You Can Deduct MAGI Phaseout Threshold MAGI Phaseout Limit
Single $2,500 $70,000 $85,000
Married, Filing Separately You can’t declare this deduction You can’t declare this deduction You can’t declare this deduction
Married, Filing Jointly $2,500 $145,000 $175,000

Put merely, how a lot you’ll be able to deduct is determined by 3 issues:

  • How a lot student loan curiosity you truly paid
  • What your Modified Adjusted Gross Income (MAGI) is
  • What your tax submitting standing is
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So let’s stroll by way of every individually

How a lot student loan curiosity did you pay?

This must be apparent, however you can not deduct greater than you paid. So barring the entire caveats above, in case you solely paid $500 in student loan curiosity, you’ll solely be capable to deduct, at max, $500. Your student loan supplier ought to ship out a 1098-E tax type initially of each tax season that will help you with this quantity.

What is your MAGI?

MAGI is a type of acronyms within the tax code that you just don’t hear about typically. This is as a result of the MAGI is never used because it’s similar to your AGI, and actually solely used for particular nook circumstances corresponding to how a lot of your student loan curiosity you’ll be able to deduct! Calculating MAGI generally is a bit complicated, however our AMT Calculator
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Otherwise, you will get your MAGI, or get a superb tough estimate of your MAGI, just by taking your complete revenue and subtracting contributions to your conventional 401k and HSA Contributions. If you’re self employed, there are a couple of further issues you’ll be able to take off as effectively.

What is your submitting standing?

Your submitting standing determines the varied phaseout thresholds talked about above within the desk. I’ll go over the calculations down beneath.

The most necessary factor to notice right here is – and I’m repeating myself a bit – if you’re submitting as Married, Filing Separately, you can not take the student loan curiosity deduction! Isn’t that loopy? I don’t know why. Ask Uncle Sam.

In addition, the utmost you’ll be able to deduct on any single tax return is $2,500. That means it doesn’t matter in case you’re submitting as ‘single’ or in case you’re ‘married, filing jointly’ and each of you may have student loan curiosity paid, the max you’ll be able to put down is $2,500.

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So I can deduct $2,500, proper? Not fairly

To calculate the Student Loan Interest Deduction, comply with 3 guidelines (and discuss with the above desk):

  • If you make beneath the ‘MAGI Phaseout Threshold’, you’ll be able to deduct as much as the complete $2,500
  • If you make above the ‘MAGI Phaseout Limit’, you can not deduct something
  • If you make between the MAGI phaseout threshold and the restrict, comply with the beneath steps:
  1. Subtract the phaseout threshold out of your MAGI
  2. Divide that quantity by $15,000 if you’re submitting as single, and by $30,000 if submitting as married
  3. You ought to find yourself with a ‘multiplier’ between 0 – 1, rounded to three digits (i.e. 0.621)
  4. Take the quantity you truly paid (as much as $2,500) and multiply it by the multiplier
  5. Subtract the quantity you bought in step 4 from quantity you truly paid (as much as $2,500)

Confused? Let’s stroll by way of some examples

Example 1: Single, however Over the Phaseout Limit

Bob is projected to pay $750 in student loan curiosity this 12 months. His complete revenue is $120,000. He is a single filer and contributed the max to each his HSA ($3,650) and Traditional 401k ($20,500). That means his MAGI is $95,850. Because his MAGI is above the Phaseout Limit of $85,000 as a single filer, he can’t deduct any of his student loan curiosity.

Example 2: Married, and Under the Phaseout Threshold

Tarzan and Jane are projected to pay $3,000 in student loan curiosity this 12 months. Tarzan remains to be in class however Jane is in her first 12 months of labor and has a complete revenue of $140,000. They are married and are planning to submitting collectively. Jane isn’t provided an HSA at work however she did max out her contributions to her Traditional 401k ($20,500). Tarzan, being a full time student with no half time job, isn’t contributing to both a 401k or HSA.

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That means their joint MAGI is $119,500. Because their MAGI is beneath the Phaseout Limit of $145,000 for ‘married, filing jointly’, they’ll deduct the max quantity, which is $2,500 although they paid $3,000 in student loan curiosity.

Example 3: Single, and in between Phaseout Threshold and Limit

Karen is single and able to mingle, and is projected to pay $1,000 in student loan curiosity for the 12 months. She has a complete revenue of $85,000. She’s determined to contribute to a Roth 401k as an alternative of a Traditional 401k however does have a High Deductible Health Plan by way of work which gives a HSA that she maxed out for the 12 months ($3,650). That means her MAGI comes out to $81,350.

Because she is between the Phaseout threshold ($70,000) and restrict ($85,000), she has to do some math to find out how a lot of the $1,000 that she paid in curiosity she will truly deduct. Per our steps outlined above, right here’s do the maths:

Step by Step Value
Subtract phaseout threshold from her MAGI 81,350 – 75,000 = 6,350
Divide that quantity by 15,000 (as a single filer) to get her multipler 6,350 / 15,000 = 0.423
Multiply the curiosity truly paid by the multiplier decided 1,000 * 0.423 = 423
Subtract that quantity from the curiosity she truly paid 1000 – 423 = 577

That means when Karen is submitting out her tax type she would solely deduct $577!

Wow, that was a mouthful. Luckily, you’ll be able to overlook the headache, and let our AMT Calculator
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