Depending on your specific loan situation, you may be eligible to deduct some of the interest you pay on student loans from your reported income. That means a lower income bracket - and less tax. The amount you can deduct depends upon your income level. Right now, the maximum deduction is $4,000. To claim this deduction, you must use either Form 1040 or Form 1040A. Follow the instructions included with the form to determine the amount you can deduct. Include that amount on line 24 of Form 1040 or line 17 of the Form 1040A. Who Is Eligible
Both students and parents who have taken out loans on behalf of their kids may be eligible for this deduction. You can deduct interest on your student loans if you:
- have taken out the loan to pay for your own expenses or the expenses of a spouse or dependent;
- have used the loan for qualified educational expenses;
- are enrolled at least half time in a degree program at an eligible institution; and
- are not claimed as a dependant by your parents on their tax returns.
You also must meet an income test. The income limits are dependent on your marital status and your adjusted gross income (AGI). Your AGI is your total income minus deductions for a number of items, like moving expenses or medical savings accounts. The IRS includes an income-test worksheet in the instructions that come with the 1040 tax forms. Once you've determined your AGI, you'll know if you're eligible for a tax break. If you are a single taxpayer and report an AGI of less than $80,000, you're eligible. Married taxpayers are eligible if they report a modified AGI of less than $160,000.