Are you wondering who can deduct student loan interest on their taxes, the student or the parents? We know that it can be confusing!
- The answer is, the person/people responsible for the repayment of the qualified student loan can deduct the interest actually paid in the tax year.
A qualified student loan is one that you took out solely to pay for higher education that was:
- For you, your spouse or a person who was your dependent when you took out the loan.
- For education provided during an academic period for an eligible student.
- Paid or incurred within a reasonable period of time before or after you took out the loan.
There are, however, a few exceptions to this!
You cannot deduct if you are married and filing separately or if you or your spouse are claimed as a dependent on someone else’s tax return. This means that if you are a student and your parents still claim you on their tax return as a dependent, then you cannot file the deduction.
The student can claim the deduction instead of the parent if ALL of the following requirements are met:
- Their filing status is any other status except for married filing separately.
- No one else is claiming them as a dependent on their tax return.
- They are legally obligated to pay interest on a qualified student loan.
- They have paid interest on a qualified student loan.
A few different common “claiming scenarios” include:
- If the parents are obligated to repay the loan (most common with a Parent Plus Loan) and they are paying the loan/interest, they take the deduction even if the student is no longer their dependent.
- If the parent is obligated to repay the loan (usually with a Parent Plus Loan as well) and the student is paying the loan/interest on it, the parents still take the deduction since they are the responsible party. If the student wants to receive the deduction, they should look into refinancing it so that they are the responsible party.
- If the student is obligated to repay the loan and it is in their name, but the parents are repaying the loan and the student is a dependent on his/her parents return, then no one gets the deduction.
- If the student pays the loan but is a dependent of his/her parents still, then no one gets the deduction.
- If the student is paying the loan and is NOT a dependent of his/her parents, then the student takes the deduction.
*** Remember ***
Regardless of who takes the deduction, they should be AWARE:
- that their Modified Adjusted Gross Income (MAGI) for 2019 must be less than $85,000 for Single or $170,000 for Married Filing Jointly.
- that the maximum deduction remains $2,500 per return.
Information in the article gathered & edited by our Accountant Laurel Korreck