ALL THE MONEY NEWS YOU NEED TO KNOW | | | | | | Daniel de Visé | Personal Finance Reporter
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Good morning. This is Daniel de Visé with your Daily Money, Sunday Tax Edition. |
On Sundays between now and April 15, we'll walk you through what's new and newsworthy in Tax Season 2024. |
In today's edition, we're going to talk about student loans. |
Last fall, millions of Americans faced the unwelcome reality of resuming payments on their student loans. |
This spring, they get a chance to reap the upside. |
Interest resumed on federal student loans in September, after a lengthy pause, and the first new payments were due in October for more than 40 million Americans. |
The good news: If you are repaying a student loan, you may be able to take a federal tax deduction of up to $2,500 on the interest, Medora Lee reports. And you don't need to itemize. |
Before you claim the student loan tax break, make sure you know the income limits, who owns the loan, who's making the payments, and if your parents claim you as a dependent. That way you know who, if anyone, can take the deduction. |
What are the income limits? |
The deduction phases out as your income rises. For tax year 2023, the phase-out for single filers begins when modified adjusted gross income is above $75,000 and, for joint filers, over $155,000. It ends at $90,000 for single filers and $185,000 for joint filers. |
Who can claim the deduction? |
You can claim the deduction if: |
◾ Your filing status is anything other than married and filing separately. |
◾ No one else claims you as a dependent on their tax return. |
◾ You're legally obligated to pay interest on a qualified student loan (meaning that your name is on the loan as owner or co-signor). |
◾ You paid interest on a qualified student loan. |
In addition to interest, you can deduct: |
◾ The loan origination fee, or the one-time fee charged by the lender when a loan is made. |
◾ Capitalized interest, or unpaid interest on a student loan that's added by the lender to the outstanding principal balance. |
◾ Interest on revolving lines of credit, including credit card debt, if the borrower uses the credit only to pay qualified education expenses. |
◾ Interest on refinanced and consolidated student loans. However, if you refinance a loan for more than the original sum and use the extra money for anything but qualified educational expenses, none of the interest will be deductible. |
You can't deduct anything that would be a double benefit. For example, you can't deduct: |
◾ Interest paid by your employer under an educational assistance program. |
◾ Any amount paid from a qualified tuition plan, like a 529 plan, because that money was already tax-free. |
What if I received student loan forgiveness? |
If you were one of the lucky ones who had all or part of their student loans erased, you don't owe any federal taxes on that forgiveness. |
However, be sure to check your state income tax rules. Most states followed the federal government by not taxing student loan forgiveness, but a few didn't. |
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