It’s time to do your 2020 taxes! If you have student loans and paid interest for those loans, you might be eligible for a deduction called the student loan interest deduction. For 2020, the IRS is allowing eligible taxpayers to deduct up to $2,500 of interest paid on a qualifying student loan per return.
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You can claim the deduction if:
A qualified student loan is:
Qualified education expenses are:
For 2020, if you file your taxes as Single, Head of Household, or Qualifying Widow(er), you can deduct the full amount of the interest you paid (up to $2,500) if your Modified Adjusted Gross Income (MAGI) is not more than $70,000. If your MAGI is $85,000 or more, you cannot deduct any of the interest, and for taxpayers with MAGI between $70,000 and $85,000, you can claim a partial deduction.
If you file your 2020 taxes as Married Filing Jointly, the MAGI limits are simply doubled. You get a full deduction if your MAGI is not more than $140,000 and your deduction is completely phased out if your MAGi is $170,000 or more.
Don’t look for your Modified Adjusted Gross Income on your tax return…because you won’t find it! Instead, you have to look for your Adjusted Gross Income (AGI) and do a little math. You can find your AGI on line 11 of Form 1040 or 1040-SR. Then you have to add back certain deductions found on your Schedule 1, including any IRA contribution deductions, taxable Social Security payments, excluded foreign income, interest from EE savings bonds used to pay for higher education expenses, losses from a partnership, passive income or loss, rental losses, and exclusion for adoption expenses. Some of these deductions can be uncommon, so your MAGI could be the same or pretty close to your AGI.
If you go to this IRS page, you can use their interactive tax assistant to figure out if you can deduct the interest you paid on a student loan.
When you get ready to file your taxes, look for Form 1098-E. If you paid $600 or more of interest on a qualified student loan, you should receive a Form 1098-E. And when you file, since the student loan interest deduction is treated as an adjustment to your income, you don’t have to claim it as an itemized deduction on Scheduled A to claim it.
If you have federal student loans, you may not have paid a lot of interest in 2020 since federal student loan payments were suspended and the interest rate was set to 0% in March 2020. However, if you did pay interest on any federal or private loans, make sure to look into whether or not you can claim this deduction!
For more information about the student loan interest deduction and other tax benefits related to education, read IRS Publication 970. And if you need help figuring out what to do with your student loans, schedule a free 15-minute call with us to learn how we might be able to create a custom plan for you!