You’ve worked hard to make payments on your student loan debt all year. Now it’s time to take advantage of the tax credits available when filing your tax return. The credits ultimately reduce your taxable income, simply because you paid for interest on your qualified loans or related educational expenses in the prior year. According to Student Loan Hero, that can mean deducting up to $2,500! So, How to Put Your Student Loan Tax Credits to Work?
It’s not as complicated as it sounds. Let’s take a look at what the student loan tax credits are and the steps you need to take to claim them.
Interest Paid on Student Loans
Whether you have a tax professional prepare your taxes, or you are filing them yourself, be sure to get the 1098-E statement from your student loan provider. This statement includes the interest amount that you are eligible to claim. It will be mailed to you but can also be accessed via your loan provider’s website.
If you don’t receive a 1098-E, it may be because you paid $600 or less in interest during the tax year. However, you are still able to include the deduction on your taxes even if you don’t have the form.
Keep these additional notes in mind. The type of repayment plan you’re on doesn’t matter. You still qualify for the deduction even with an income based repayment or income contingent plan. Also, your modified adjusted gross income must be less than $75,000 for single filers, or $150,000 for joint filers to deduct all or a percentage of your loan interest.
Eligible Education Expenses
If you attended school at minimum half of the time in the tax year you’re filing for, qualified education expenses for tuition, fees, books, and other items may be deducted for the first four years of attendance. Thanks to the American Opportunity Tax Credit, 100 percent of the first $2,000 in qualified expenses are covered. An additional 25 percent after that is covered up to $2,500.
For individuals not pursuing a degree, you may be eligible to qualify for the Lifetime Learning credit and claim up to $2,000 on your tax return.
Forms Needed to File
The forms required to apply for the tax credits and the loan interest deductions are IRS Form 8863 and Form 1040.
So, instead of crossing your fingers (and toes) in hopes of getting a tax refund this year, be sure to include all of your appropriate tax credits so you can cash in on the savings.