What are the requirements for claiming the student loan interest deduction?

Filing taxes can be a daunting task, but a tax deduction can help lighten the load. By subtracting a certain amount from your income, you can lower your taxable income and, in turn, the amount you owe in taxes. As a student, you may be eligible for a tax break on your student loan interest payments. It's worth checking to see if you qualify for this valuable deduction.

CNBC Select provides information on how to claim student loan interest deduction, who is eligible, and how it works when filing taxes.

Is student loan interest deductible?

You can deduct the interest portion of your student loan payments as an adjustment to income, according to the IRS. This tax break can help you write off as much as $2,500 of your taxable income.

Who qualifies for the student loan interest deduction?

You need to meet the following qualifications to be eligible this year:

• You're enrolled at least half-time;
• You paid interest on a qualified student loan in 2023;
• You're legally obligated to pay interest on that student loan;
• Your filing status isn't married filing separately;
• If you're filing as single, head of household, or married and filing a joint return, your adjusted gross income (MAGI) is less than $90,000 or $185,000, respectively.
• If filing jointly, neither you nor your spouse is claimed as a dependent by anyone.

How do I know if my student loan qualifies for the tax deduction?

All student loans, not just federal loans, are subject to the deduction. If you used your loan solely for higher education expenses that were qualified, your loan is eligible for the deduction.

• For you, your spouse or dependent;
• During an academic period, education is provided.
• Within a reasonable period before or after taking out the loan, the cost was either paid or incurred.

According to the IRS, a loan period is considered "reasonable" if the loan expenses are linked to a specific academic term and the loan funds are disbursed within a timeframe that starts 90 days before the start of that academic term and ends 90 days after its conclusion.

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How to deduct student loan interest

If you paid at least $600 in interest on your student loan, your servicer should send you IRS Form 1098-E, which will detail the amount of student loan interest your lender has received from you. If you've paid less or haven't received the form, you can still contact your servicer to obtain the specific amount of interest you paid in 2023.

Filing taxes can be done for free using tax software, such as TurboTax, which covers student loan interest deduction among other situations. TurboTax is a popular tax software that offers a range of features to simplify the filing process. Additionally, you can pay for live assistance from a tax expert if needed.

If you need help with your taxes, you can upgrade to one of the paid plans offered by H&R Block. If you prefer to file your taxes on your own, the Free Online tier includes the 1098-E form.

Other tax breaks for students

You may be eligible for academic credits if you are currently pursuing a degree.

• The American Opportunity Tax Credit offers a maximum of $2,500 annually for qualified education expenses paid during the first four years of pursuing a degree or credential while working.
• Qualified tuition and other school expenses can be covered with a Lifetime Learning Credit of up to $2,000 per year.

To claim either of these credits, you must obtain a Form 1098-T from your school and review the eligibility requirements set forth by the IRS.

Bottom line

You may be eligible for a student loan interest deduction, which can lower your taxable income and offset some of your educational expenses. To optimize your tax benefits, consider consulting with a tax expert, as some tax software companies offer affordable and straightforward tax assistance.

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