Who can take the credit for interest on stafford loans?
Can we take it if Happykid is considered a dependent?
Or is she the only one who can take it - in which case she needs to be considered independent?
Happykid is collecting her paperwork, and I’m collecting ours, and until we see it all we won’t know if she’s dependent or independent for 2014.
My understanding is that only the student can take the interest deduction - only if she is actually paying it - and only if no one else can claim her as a dependent. From the IRS website:
Topic 456 - Student Loan Interest Deduction
You may be able to deduct interest you pay on a qualified student loan. Generally, the amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid and it is subject to a phaseout, which means the amount of the deduction gradually decreases and phases out completely if and when your modified adjusted gross income (MAGI) amount reaches the annual limit.
You claim this deduction as an adjustment to income so you do not need to itemize your deductions on Form 1040, Schedule A (PDF), Itemized Deductions.
You can claim the deduction if all of the following apply:
You paid interest on a qualified student loan in tax year 2014
You are legally obligated to pay interest on a qualified student loan
Your filing status is not married filing separately
Your MAGI is less than a specified amount which is set annually, and
You or your spouse, if filing jointly, cannot be claimed as dependents on someone else’s return
A qualified student loan is a loan you took out solely to pay qualified higher education expenses. See Publication 970, Tax Benefits for Education, and the Form 1040 Instructions (PDF) to determine if your expenses qualify.
If you file a Form 2555 (PDF), Foreign Earned Income, Form 2555-EZ (PDF), Foreign Earned Income Exclusion, or Form 4563 (PDF), Exclusion of Income for Bona Fide Residents of American Samoa, or if you exclude income from sources inside Puerto Rico, refer to Worksheet 4-1, Student Loan Interest Deduction Worksheet in Publication 970, instead of the worksheet in the Form 1040 Instructions.
If you paid $600 or more of interest on a qualified student loan during the year, you will receive a Form 1098-E (PDF), Student Loan Interest Statement, from the entity to which you paid the student loan interest.
For more information about the student loan interest deduction and how your MAGI affects the deduction amount, refer to Publication 970.
here is some more info: http://www.irs.gov/publications/p970/ch04.html
Wow, so how does this even work then? Most of these kids will not have enough income to provide more than 50% of their own support, so the parents would be eligible to claim them as dependent on their taxes, right? So neither could claim the student loan deduction according to the IRS rules? If they defer payment on the loan until they graduate from college and have a job (and are independent of their parents for tax purposes), they might make over $65,000 and the student loan deduction will be reduced, so they might still not be able to claim the deduction and also have to pay more interest back because it will have accrued since the loans were taken out.
There’s a disconnect between what kelsmom quoted from IRS Tax Topic 456 (Student Loan Interest Deduction) and the criteria as listed in the Student Loan Interest Deduction section of IRS pub. 970.
The Tax Topic says that you are eligible to deduct student loan interest if you or your spouse, if filing jointly, cannot be claimed as dependents on someone else’s return.
Pub. 970 says that you are eligible to deduct student loan interest if no one else is claiming an exemption for you on his or her tax return.
Under the pub. 970 criteria, if someone else can claim an exemption for you on their return, but chooses not to, then you can take the student loan interest deduction. However, under the tax topic criteria, this is not possible, because if someone can claim an exemption for you, that means that you can be claimed as a dependent on their return.
Here’s a helpful article about student loan interest. Not sure whether it answers your question but it might be helpful to others.
While our D was in college, she was not paying on her loans, so we did not deduct that interest even though she was accounted for on our return as a dependent.
We do deduct interest from Parent plus loans, as well as monies paid to the school.
Thanks, I knew it was in there somewhere, but ran out of patience trying to find it.
This is just as complicated as everything else concerning education expenses and deductions.
Not really that complicated. Student usually starts paying on their loans 6 months or so after graduation (at the end of the deferment period), by which point most are no longer dependents of their parents. They can deduct the interest at that point.
parents can deduct the interest on their PLUS loans.
In both cases, the income requirements must be met.
(And if the new grad has such a well-paying job as to be above the income cut-off, that’s a GOOD thing. lucky kid!)
Can a student who can be claimed as a dependent on parent’s return, but is not, claim the student loan interest deduction on their own return?
That is the question.
And I don’t think making $60,000 is that high of an income after going to college and getting a Bachelors degree or higher. So the students will pay over 5% interest on these loans for 10 years and not be able to (fully) get the deduction.
Back in the last century, there was no deduction for student loan interest. Some of my loans were at 7%. I got them all paid off in less than 10 years on an income that was less than the equivalent of a current 60k.