One of the most overlooked tax deductions is the student loan write-off. When you begin paying off your student loans, much of that payment will go towards the interest. While you cannot write off the loan principle, the interest you pay towards it can be deducted. To ensure that you write off your student loans correctly, there are a few factors to take into consideration.
Obtaining Year-end Statement
You must obtain the year-end statement for your student loan before you can begin any paperwork. If you pay your bill online, it will be simple to print off. If you do not use this method of payment or prefer to have a statement from the actual company, you can wait until you receive one in the mail. Generally, year ending statements will come out soon after January 1st, however with so many student loans, statements are often delayed. If you have not received your statement by mid January, call the company to request one or consider an online account for this purpose.
Determining Interest Paid
Familiarize yourself with the statement. Search through and determine the amount of interest that was paid, not including the principle balance. The student loan tax deduction only applies to the interest that has accrued.
Obtaining and Completing Tax Form
Before you can fill in the proper interest amount, you will need to obtain a tax form. If you choose to fill out your taxes online or with computer software, the form will be provided for you. However, if you plan on mailing in your tax information, you will need to get a paper form. These forms can be found in many locations including the post office, public library, village hall, local IRS office and some schools or universities. Once you have the correct paperwork, you will need to enter or write the amount of interest you paid towards the loan where deductible expenses are itemized. This is the same section that you would record charitable donations.
In order to perform calculations, you will need to know your income to use as a calculation to base your deduction off of. Note that the entire amount of interest will not be returned to you. There is a limit of $2,500 that can be claimed and the amount of your return will vary depending on your income. Basic guidelines state that the full $2,500 can be claimed if your total income is below $60,000 as a single person filing or $120,000 if you are filing jointly. If your income falls between $60,000 and $75,000 as a single person filing, or $120,000 and $150,000 when filing jointly, then you will receive a prorated deduction. If your income falls above the higher end, you will not be eligible to write off your student loan interest.
Take note that while this deduction is currently available, it may be limited in the future. Beginning in 2013, the interest may only be deductible for the first 5 years of repayment.