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If there’s any silver lining to the interest accumulating on your student debt, it’s that it can knock down your tax bill.
The IRS allows certain borrowers to deduct up to $2,500 in student loan interest each year from their taxable income, and it can come from payments to federal or private student loans, said Mark Kantrowitz, the publisher of SavingForCollege.com.
Some 12.5 million people claimed the deduction in 2017, which went into effect with the Taxpayer Relief Act of 1997. That means nearly 1 in 3 borrowers take advantage of the write-off.
Still, many others could be getting the relief.
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“I’d estimate that about a third of eligible borrowers aren’t claiming the student loan interest deduction,” Kantrowitz said.
To be sure, not everyone making student loan payments qualifies.
Regardless of the interest that has accrued on your loans over the year, you can only deduct from the amount you’ve paid.
Also, to claim the full break, your income must be below $70,000 if you’re single, or $140,000 if you’re filing jointly with a spouse. If your earnings are above a certain amount ($85,000 or $170,000, respectively), you can’t take advantage of the deduction at all. However, you don’t have to itemize on your return to utilize it.
Married filers are subject to the same $2,500 limit as single filers, though recently introduced legislation would expand the limits and give joint filers a larger break.
You must also file your taxes as an independent – not a dependent on your parents – to be eligible.
Parents who assist their children with their student loan payments won’t qualify for the deduction, Kantrowitz said. However, if you’re a co-signer on your child’s private student loans, you can write off the contributions toward interest you paid.
On Credible‘s website, you can find a guide to how to calculate how much student loan interest you’ve paid for the year and what documents you’ll need to include the deduction on your reported taxes.