2016 Tax Return Tip: Deduct Student-Loan Interest Paid by Your Parents

Generally, you can deduct interest only if you are legally required to repay the debt. But if parents pay back a child's student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt.

So as long as the child is no longer claimed as a dependent, he or she can deduct up to $2,500 of student-loan interest paid by Mom and Dad each year. And he or she doesn't have to itemize to use this money-saver.

Mom and Dad can't claim the interest deduction even if they actually foot the bill because they are not liable for the debt.

See more tax tips for your 2016 return:

Deduct Job-Hunting Expenses

Out-of-Pocket Charitable Deductions

Deduct State Sales Tax