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Student Loan Interest Deduction

What is a student loan interest deduction?

You may be able to deduct as an adjustment to income a limited amount of interest you paid on a qualified student loan. This adjustment is entered on line 33 of Form 1040. For example, for the tax year 2006, the most you can deduct is $2,500.

When can't I deduct student loan interest deduction?

You cannot take the student loan interest deduction adjustment if:

  • your filing status is married filing separately or if
  • you can be claimed as a dependent on another person's tax return.

Qualified student loan

What is a qualified student loan?

A qualified student loan is a loan you took out solely to pay qualified education expenses at an eligible educational institution for an eligible student. The qualified education expenses must be paid within a reasonable period of time before or after you took out the loan.

The student must be yourself, your spouse or anyone who was your dependent when you took out the loan.

The loan cannot be from someone related to you. You cannot deduct interest on a loan made under a qualified employer plan. You must use the loan only for qualified education expenses.

What are qualified higher education expenses?

Qualified higher education expenses are the costs of attending an eligible education institution. These costs include tuition, fees, room and board, and related expenses such as books, supplies, equipment and other necessary expenses such as transportation.

You must reduce these expenses by certain nontaxable benefits such as:

  • employer provided educational assistance,
  • distributions from a Coverdell education savings account (ESA),
  • US savings bond interest used for higher education purposes, or
  • any other nontaxable payments received for educational expenses.

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