In the wake of the new tax reform bill, many people with debt are starting to wonder whether or not they can take the student loan interest deduction with all the tax reform changes. For the most part, the answer is yes.Next year, people receiving their 1098-E Student Loan Interest Statement will still qualify to deduct student loan interest. If you have significant student loan debt, this could yield up to a few hundred dollars in savings for you.Today, we break down what the 1098-E is, and how it impacts your taxes so that you can potentially claim the student loan interest deduction.
For a long time, it seemed that the student loan interest deduction would be eliminated with theHowever, in the final version of the bill, the student loan interest deduction remained in tact.This means that student loan borrowers can take an “” deduction on student loan interest payments into next year.Unlike most tax deductions, you do not need to itemize your taxes to take the student loan interest deduction. That means that even with the higher standard deduction, you may still qualify to take this deduction.To take the student loan interest deduction, you must pay at least $600 in student loan interest. You can only deduct up to a maximum of $2500 in interest paid. The student loan interest deduction is an adjustment of your gross income. So if you paid $2500 in student loan interest, and you earned $60,000, you’ll only pay taxes on $57,500.For the purposes of the deduction, it doesn’t matter whether your loans are federal loans or private student loans. Both qualify for the deduction.The student loan interest deduction goes to the person who is legally required to pay the student loans. That means, if your parents took out loans for you, they get the deduction. This is even true if you make the payments for the loans.Married borrowers must opt to file taxes as married filing jointly if they want to qualify for the deduction.The student loan interest deduction is also affected by your income. It is a deduction with a “phase out period” which means as your income grows, you may have a lower deduction.The table below shows how your income affects your ability to take a deduction for 2019 (when you file in 2020):
If you meet or exceed the $600 interest requirement, your student loan servicer should mail you a copy of a 1098-E form. Box-1 of the 1098-E form contains the total interest you paid on your loans in the previous year.People with multiple student loan servicers may not automatically receive their 1098-E forms if they paid less than $600 in interest per servicer. In those cases, call your loan provider for more information and to ask them to issue you the form. While you don’t need the form to complete your taxes, it’s a lot easier than trying to figure out the amount of interest you paid on your own.The 1098-E form is a very basic form that contains your personal information and the amount of interest you paid to the lender. If you receive multiple 1098-E forms, you will need to add the amounts in Box-1 of the forms to determine your total amount of interest paid.Remember, you can deduct up to a maximum of $2500.
If you’re using a tax software to do your taxes, the software will automatically calculate your deductions. However, if you’re hand filing your taxes, you’ll need to enter your total interest paid on your form 1040. Since the student loan interest deduction is an above the line deduction, you don’t need to worry about an entire itemization schedule.