Who will receive and how much?

Interest on federal student loans began accruing again on September 1 of last year. However, some tax relief is available to millions of Americans who have resumed student loan payments thanks to the student loan interest tax deduction. These student loan borrowers may be eligible for a tax break in 2023.

What expenses are deductible?

Interest on federal student loans began accruing on September 1, 2023, and the first payment for millions of Americans was due in October 2023. According to the IRS, student loan borrowers may be able to deduct at least some of the interest paid on their student loans. You borrow money from your taxable income.

During the COVID-19 pandemic, the federal government suspended interest accrual on qualified student loans for more than three years. The student loan interest tax deduction allows borrowers to deduct up to $2,500 in interest paid (on qualified private or federal education debt) from their taxable income.

In addition to interest payments, borrowers can also claim deductions for capitalized interest, loan origination fees, and interest on refinance and consolidation student loans. This deduction applies to any student loan you take out to pay for higher education costs for yourself, your spouse, or a dependent.

You cannot deduct interest paid by employers under educational assistance programs and interest paid from tax-exempt qualified tuition plans, such as 529 plans. Eligible borrowers can claim the student loan interest tax deduction as an income adjustment. This means borrowers do not have to itemize their deductions.

Who can receive the student loan interest tax deduction?

To qualify for the student loan interest tax deduction, borrowers must:

• You paid interest on a qualified student loan in tax year 2023.
• You have a legal obligation to pay interest on your qualified student loans.
• Married couples must not file separate returns.
• Your modified adjusted gross income must be less than $90,000.
• (Borrower and spouse) cannot be claimed as a dependent based on someone else’s income.

If your child repays the loan (if legally obligated to do so) but a parent or someone else claims the child as a dependent, no one can claim the deduction.

Additionally, if your parents or someone else pays the loan, you cannot deduct it because they are not obligated to pay. Instead, the person making the payment can claim the deduction if they meet the income limits and are not claimed as a dependent. The tax office considers this as a gift of money to the borrower, and the borrower pays it.

It’s important to note that the deduction gradually decreases for borrowers with modified adjusted gross income (MAGI) between $75,000 and $90,000 ($155,000 and $185,000 for joint filers). The deduction is not allowed for borrowers with a MAGI of $90,000 or more ($185,000 or more if filing jointly).

To learn more about the student loan interest tax deduction, visit this link.