As many students know all too well, it’s nigh impossible to go for a full degree without encountering some sort of college loan. True, these loans do allow a grace period of six months after graduation before one has to start paying, but with these loans many times getting into the multiple thousands of dollars, they end up being very bitter pills to swallow. As of last year, the IRS has made it a little easier on the general public.
The first thing the IRS did was make it possible for more people to claim these deductions. They increased the phase out limit, or how much you can earn and still be able to file for a deduction. Before 2009, the limit for single claimants was $55,000 adjusted gross income for full deductions and from $55,001 to $70,000 for partial deductions. For people filing joint returns, the ceilings were $110,000 and $145,000 respectively. Starting with this year, the limits are now $60,000 and $75,000 for individuals and $120,000 and $150,000 for joint returns.
One thing to consider is one must have attended an accredited, “qualified” institute of higher learning, and the student must be going to the school on a minimum half-time basis. The university can be either an on campus or online college. From there, the college loan must be applied to paying a pretty broad list of items, including tuition, fees, equipment, room and board and travel.
There are some important restrictions to contemplate. The IRS will not allow any deductions if the loan comes from a personal relative. They also won’t allow most deductions if it’s part of a private corporation’s educational program, especially one that employs the student. There is also a limit to how much one can deduct a year.
From there, it can get pretty simple. Basically, if a single person earns under $60,000 when it’s time to file one’s taxes, the first thing one should do is get an annual statement from whoever issued the loan. Discern how much went towards paying the principle from what was used to pay interest. From there, deduct the full amount of the interest with the aid of a 1098-A form. If it’s between $60,001 and $75,000, there is a formula to see what percentage can be deducted. If one’s filing a joint return, substitute the higher limit numbers for the lower.
There are other provisos one should always be mindful of, some of which can increase one’s number of deductions. A solid suggestion is to find a qualified tax person to help with figuring out what’s deductible and what’s not.
Still, if one wants to get a feel for it all, the IRS has a very logical and easy-to-follow series of web pages on the matter. These days one can use every bit of help one can get, especially for those attending a distance learning degree program who might have chosen that route for financial reasons, rather than flexibility. Student loans seem to be a part of education, a big part, and learning all you can about possible credits for these loans can be huge.
