The student loan interest deduction What you need to know

The student loan interest deduction What you need to knowThe student loan interest deduction What you need to knowFiguring out how to fill out your tax return each year is enough to send anyone running for the exit. But this year your student interest loan deduction doesnt need to be a source of anxiety or frustration for two reasonsThe Tax Cuts and Jobs Act of 2017 kept the deduction in place (phew)Weve explained everything you need to know right here.What is the student interest loan deduction?If you paid interest on your student loans last year, then you may be eligible for a deduction of up to $2,500 on your 2018 federal tax return.How it worksThe student interest loan deduction is an above-the-line deduction. That means its deducted from your modified adjusted gross income (MAGI), elend from your final tax payment.So dont expect to see a $2500 refund just because you qualify for the deduction. Instead, if your MAGI is, say, $43,000, then the deduction lowers the income amount yo ure taxed on to $40,500.To take the deduction, you need to meet four requirementsYou paid the interest on an eligible loan (or loans)Your modified adjusted gross income is under the capYoure not being claimed as a dependent by anyone elseYoure not filing as married filing separatelyLets dig into each requirement.What is an eligible loan?A qualified student loan is one that you took out for you, your spouse, or your dependent. Unfortunately, borrowing money from grandma and grandpa doesnt count. It has to be a bona fide public or private loan.You also must have taken the loan out for qualified education expenses, like tuition, room and board, books and supplies, and other necessary expenses - for instance, transportation.How do you know if your modified adjusted gross income is under the cap?The Internal Revenue Service provides for a deduction up to $2500, but the amount of your actual deduction depends on your MAGI.If your MAGI is above $80,000 for a single person or $165,000 for a married couple filing jointly, youre out of luck - no deduction. And the amount of the deduction will be reduced if your income is between $65,000 and $80,000 (for a single person) or $135,000 and $165,000 (for a married couple).What filing status should you use to get the deduction?If youre being claimed as a dependent by anyone else on their federal filing - a.k.a. mom and dad - then you wont be able to take the deduction. You also cant take the deduction if youre filing as married filing separately.As long as you file as a single head of household or married filing jointly and dont exceed the MAGI cap, then you should get a deduction up to $2500. taxwinWhat if youve had a loan forgiven?In general, forgiven debt is treated as taxable income by the Internal Revenue Service. So if, for instance, you reached the end of your term on anincome-driven repayment planlast year and had the remainder forgiven, youll be responsible for paying taxes on that forgiven amount.However, thePub lic Service Loan Forgiveness Program(PSLF) is an exception to this rule. If your debts (or your spouses or dependents) are forgiven through PSLF - or because of death orpermanent and total disability- you will not owe taxes on the forgiven amount.If you get a refund on your taxes this year, remember to allocate at least a portion of it to your student loan payments. Paying ahead, even just small amount, can save you big money over the life of your loans.This article first appeared on Comet.