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Top-Earning Grads Lose Student-Loan Deduction
What are the income limits for deducting the student-loan interest I paid last year?
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
February 27, 2004
What are the income limits for deducting the student-loan interest I paid last year?
You can deduct up to $2,500 in student-loan interest in 2003 if your modified adjusted gross income is less than $50,000 or $100,000 if you're married and file a joint return.
The amount of the deduction begins to phase out once your income exceeds those levels and disappears entirely if you earn more than $65,000 or $130,000 if you're married.
You cannot claim the deduction if you are married filing a separate return.
If you're in the 25% bracket, deducting student loan interest can lower your tax bill by up to $625.
You don't have to itemize to take the deduction. But you must use the loan to pay for tutition and fees, room, board, books, suppplies and equipment at a recognized school or college. Loan origination fees and interest from any extra payments you may have made throughout the year count, too.
And you don't have to worry about qualifying for financial aid to get the deduction. Even revolving interest charges on a credit card that's used exclusively for qualified educational expenses may be deductible.
However, loans from relatives or from an employer plan -- such as a 401(k) -- do not qualify.
See the student loan worksheet in the Instructions to Form 1040 to calculate how much you can write off. Also see IRS Publication 970 Tax Benefits for Education for more information.