Cash Flow Planning for Life - Helping you reach your personal & professional financial goals.

Cash Flow Planning for Life

Helping you reach your personal & professional financial goals.

What Do You Need to Know About Student Loan Interest?

This is the third installment of Tax Deductions & You: What You Need to Know which can also be downloaded from our free eBook library.

A student loan is designed to help students pay for university or college. It is a calculated amount that should assist with the cost of tuition, books, and living expenses. This loan may differ from other types of loans in that the interest rate may be substantially lower. In addition, the repayment schedule may be deferred while the student is still in education.

Student loan interest is another form of interest that is deductible, but with limitations. These limitations are as follows:

  1. Only the first $2,500 on interest paid is deductible per taxpayer, not per person (family member) on the return.
  2. The interest is non-deductible on a married-filing-separate return. For 2010, the deduction is phased out when your modified adjusted gross income is between $60,000 and $75,000 for singles and $120,000 and $150,000 for married filing joint taxpayers.

With low interest rates on student loans and your perceived lack of cash or equity availability, a loan would not be there if cash was available to pay for college. This may be one to leave as-is but should not be overlooked when doing a review of interest that is being paid.

These phaseouts for the deduction will be the same for 2010 and for 2011. The limitations are described in more detail in IRS Publication 970. Your tax adviser will calculate the deductible portion of your student loan interest, or you can use the worksheet found in Publication 970.

Planning AheadTax Deductions and You - What You Need to Know
The deduction for student loan interest will continue to be available to every person who is legally obligated to repay a student loan through the year 2012. However, beginning in the year 2013, the deduction will revert to an older law. According to this law, student loan interest will be deductible only for the first 60 months of repayment.

If you would like to more about student loan interest or if you are in need of a Fort Myers CPA, we are here to help. Makara and Associates are committed to education and cutting edge technologies to offer superior services to you. To learn more check out our list of frequently asked questions, you might find the answer to your question. If you would like to learn more about us or if you are in need of further assistance please contact us online, call (239)384-9688, or follow us on Twitter.

– Mark

This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.
LEGAL NOTICE AND DISCLAIMER: The information within this blog is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.

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