After more than three years, the federal student loan ‘pause’ is coming to an end. If you carry student loan debt, you might be curious about claiming deductions for the interest you’ve repaid during tax season. The response could indeed be yes, to a certain amount. The deductibility gradually diminishes once your adjusted gross income (AGI) surpasses specific thresholds — and these thresholds are notably lower compared to those associated with numerous other deductions.

Student Loan Interest Deduction Basics

If you’re eligible, the maximum amount of student loan interest you can deduct each year is $2,500. The interest must be for a ‘qualified education loan,’ which means a debt incurred to pay tuition, room and board, and related expenses to attend a post-high school educational institution, including certain vocational schools. Post-graduate programs also may qualify. For example, an internship or residency program leading to a degree or certificate awarded by an institution of higher education, hospital, or health care facility offering post-graduate training can qualify.

It doesn’t matter when the loan was taken out or whether interest payments made in earlier years on the loan were deductible or not.

It’s Not Available To Everyone

For 2023, the deduction is phased out for single taxpayers with an AGI between $75,000 and $90,000 ($155,000 and $185,000 for married couples filing jointly). The deduction is unavailable for single taxpayers with AGI of more than $90,000 ($185,000 for married couples filing jointly).

Married taxpayers must file jointly to claim this deduction.

The deduction is taken ‘above the line.’ In other words, it’s subtracted from gross income to determine AGI. Therefore, it’s available even to taxpayers who don’t itemize deductions.

No deduction is allowed to a taxpayer who can be claimed as a dependent on another tax return. For example, let’s say a parent is paying for the college education of a child whom the parent is claiming as a dependent. In this case, the interest deduction is only available for student loan interest the parent pays on a qualifying loan, not for any of the interest the child may pay on a student loan. The child will be able to deduct interest that’s paid in later years when they are no longer a dependent.

More Rules

The student loan interest paid must be on funds borrowed to cover qualified education costs of the taxpayer or their spouse or dependent. The student must be a degree candidate carrying at least half the normal full-time workload. Also, the education expenses must be paid or incurred within a reasonable time before or after the loan is taken out.

Taxpayers must keep records to verify qualifying expenditures. Documenting a tuition expense isn’t likely to pose a problem. However, care should be taken to document other qualifying education-related expenses including books, equipment, fees, and transportation.

Documenting room and board expenses should be straightforward for students living and dining on campus. Students who live off campus should maintain records of room and board expenses, especially when there are complicating factors such as roommates. Contact us with questions.