Many college graduates are entering the work force this summer and soon may be starting to repay student loans. One of the first tax lessons they may want to learn is the one about deducting student loan interest payments. Here are the basics:
• The student loan interest deduction is above the line so taxpayers don’t have to itemize to claim it.
• Only the person legally obligated to repay the interest on a qualified student loan can deduct the interest.
• If the legally obligated person is claimed as a dependent on another’s tax return, he or she is not eligible to claim the interest deduction.
• Income limits apply.
Sean is happy with his first job and is out on his own. Sean will be able to deduct up to $2,500 in student loan interest payments on his tax return each year as long as he meets all of the requirements.
Tara is uncertain about her future so she moved back home. Even though she’s the one repaying her loan, Tara’s parents claim her as a dependent so she can’t claim the interest deduction. Neither can her parents because they’re not legally obligated to make the loan payments.
Abigail is fortunate. She has a job, an apartment and a father who’s paying her student loan interest. Who gets to deduct it? Abigail is the one with the obligation and she’s not a dependent. So, as long as she meets the other requirements, Abigail gets the deduction.
For more information please call Theresa Stewart at 661-775-9534.