It doesn’t seem like it makes sense. Some folks are thinking that if they make large loans payments while their kids are in college (to pay down loans more quickly) that the IRS is told and they can’t take the tuition tax credit.
That doesn’t sound right at all.
Why would the IRS care if a family/student made large loan payments while student is in college? Why/how could that effect the means-testing or other eligibility for tuition tax credit?
No, this isn’t a thing.
Huh? That makes no sense. Not so
The tuition tax credits are for paying tuition, not for repaying loans.
If you pay tuition for that semester with a loan, you can still take a tax credit for that amount. It doesn’t matter if you paid the tuition with loan money or with savings or current income, you paid that tuition during that tax year so you get a credit.
If you paid back a loan during the tax year, you were paying a loan, NOT paying tuition, so no credit.
@twoinanddone - Why can’t a person be doing both? Paying tuition AND paying down a loan? I don’t think they are saying people are trying to get the credit on a loan payment.
Well, maybe they mean if the parent pays back the student loan then neither the parent nor the student can claim the student loan interest deduction?
Students can still take the loan interest deduction if they have enough income to deduct it.
It’s two separate things: 1) college loan interest deduction 2) Tuition credit
You can have either one without the other, both or neither.
I was trying to make sense of the original question. Tuition is a deduction (or can be), loans are not deductible (student or otherwise). Student loan interest might be deductible, but ‘making large payments’ implies it is principal being repaid, not interest.
It is tricky to qualify for loan interest deduction, from the little I read about it.
The person who is required to pay back the loan has to claim it, so for student loan that is the student. But I think they can’t be a dependent of the parent for tax purposes and an income limit applies as well.
So if the parent pays the loan or the student is dependent of parent for tax purposes then the student can’t claim the deduction. The parent can’t claim it because it is the child’s loan, and by the time the student is independent for taxes, they might be earning too much to qualify.
The only credit I know of is the American Opportunity Credit and the Lifetime Learning Credit, neither of which should have anything to do with loan payments. The student loan tax break is a deduction.
Thank you!!!
Believe me, the question didn’t make sense. When I learned that some parents thought this I couldn’t make sense of it either. So I put the question to you.
They really thought that by making larger than scheduled loan payments on student loans would somehow trigger something with the IRS and affect their education tax credit. Made no sense to me and glad to see it makes no sense to any of y’all.