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Qualifying for the Student Loan Interest Deduction

April 10, 2017

Does your child have student loan debt? Does he/she pay interest on it? If so, they could qualify for the student loan interest deduction.

Generally, personal interest expense, (besides certain mortgage interest) isn't deductible on your tax return. However, if your modified adjusted gross income (MAGI) does not exceed $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for interest paid on a higher education student loan.

If I help my son or daughter with the payments, can I deduct the interest?

If a parent helps a child repay a student loan, they unfortunately are not able to deduct the interest on that debt unless the parent is also legally liable on the loan. However, even if you paid the student loan, your child may be entitled to the interest deduction.

More about the interest deduction

As graduates work to pay off loans, they can reduce their taxable income by as much as $2,500 per year for interest paid on both federal and private student loans.

To be eligible for a full deduction, your child (the student) has to:

  • Have adjusted gross income of less than $60,000. The deduction is gradually phased out as income levels rise, with the deduction being completely phased out when income reaches $65,000 for single filers.
  • Have a filing status that is anything except married filing separately.
  • Be the sole person claiming the exemption.
  • Be legally obligated to pay interest on a qualified student loan.
  • Have paid interest on a qualified student loan.

The IRS considers the transaction as if the money were given to the student, who then resolved the debt. The student can claim the write-off as long as he or she is no longer claimed as a dependent on the parents’ return.

Does the Student Have to Itemize on Schedule A?

The student doesn’t even have to itemize on Schedule A to use this money-saver. The maximum deduction allowed for student loan interest is $2,500 a year. However, it phases out as AGI exceeds $130,000 for couples and $65,000 for single-filers.
Example (courtesy of

“During 2016, Josh paid $600 interest on his qualified student loan. Only he is legally obligated to make the payments. No one claimed an exemption for Josh for 2016. Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2016 Form 1040 or 1040A.”

Think your son/daughter might qualify? Don’t forget returns are due April 18th. Reach out to a member of the KLR Tax Team for further information.

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