Taxpayers who have taken student loans to pay the cost of attending an eligible educational institution for themselves, their spouse, or their dependent(s) generally may take a deduction of up to $2,500 on federal tax returns for the interest paid on student loans. The deduction is an "above the line" deduction, which means that it is available regardless of whether you itemize tax deductions on your tax return.
The holder of your loan will send you a Form 1098-E. The amount of interest you paid on your student loans for the year will be reported on Form 1098-E, box 1.
The deduction is available for interest paid on tax qualified education loans. A tax qualified education loan is defined as indebtedness incurred to pay for the qualified higher education expenses of the taxpayer, a spouse, or any other dependent in attending a college, university, post-secondary educational institution, or other institution eligible to participate in the U.S. Department of Education's student aid programs.
Qualified educational expenses generally include tuition, fees, room and board, books, equipment required for your education and other education-related expenses, such as transportation. An eligible student is a student who was enrolled at least half-time in a program that led to a degree, certificate, or other educational credential.
The deduction does have some limitations. The deduction is phased out for taxpayers with modified adjusted gross income between $105,000 and $135,000 for joint tax return filers and between $50,000 and $65,000 for single tax return filers.
In addition, you cannot claim the student loan interest tax deduction on your tax return in any tax year you are claimed as a dependent by another taxpayer; if you are married and file a separate tax return; on student loan interest paid to a related person; or for any amount that you deduct for tax purposes on your tax return under any other provision of the tax law.
As with any tax advice, you should consult a tax advisor before making any decisions regarding your taxes.
For additional information on the student loan interest deduction, see Internal Revenue Service Publication 970, Chapter 4.