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Publication 17

Student Loan Interest Deduction(p136)

Generally, personal interest you pay, other than certain mortgage interest, isn't deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500. Table 19-1 summarizes the features of the student loan interest deduction.
Table 19-1. Student Loan Interest Deduction at a Glance
Do not rely on this table alone.
Refer to the text for more details.
Maximum benefitYou can reduce your income subject to tax by up to $2,500.
Loan qualificationsYour student loan:

must have been taken out solely to pay qualified education expenses, and
 can't be from a related person or made under a qualified employer plan.
Student qualificationsThe student must be:
you, your spouse, or your dependent; and
 enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential at an eligible educational institution.
Limit on modified adjusted gross income (MAGI)$160,000 if married filing a joint return;
$80,000 if single, head of household, or qualifying widow(er).

Student Loan Interest Defined(p136)

Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments.

Qualified Student Loan(p136)

This is a loan you took out solely to pay qualified education expenses (defined later) that were:
Loans from the following sources aren't qualified student loans.
Exceptions. (p136)
For purposes of the student loan interest deduction, the following are exceptions to the general rules for dependents.

Reasonable period of time. (p136)

Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program.
Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met.
If neither of the above situations applies, the reasonable period of time is determined based on all the relevant facts and circumstances.

Academic period.(p136)

An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. If an educational institution uses credit hours or clock hours and doesn't have academic terms, each payment period can be treated as an academic period.

Eligible student.(p136)

This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential.
Enrolled at least half-time. (p136)
A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study.
The standard for what is half of the normal full-time work load is determined by each eligible educational institution. However, the standard may not be lower than any of those established by the U.S. Department of Education under the Higher Education Act of 1965.

Related person. (p136)

You can't deduct interest on a loan you get from a related person. Related persons include:

Qualified employer plan. (p136)

You can't deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan.

Qualified Education Expenses(p137)

For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. They include amounts paid for the following items.
The cost of room and board qualifies only to the extent that it isn't more than:

Eligible educational institution.(p137)

An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.
Certain educational institutions located outside the United States also participate in the U.S. Department of Education's Federal Student Aid (FSA) programs.
For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training.
An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. The deductibility of interest on the loan isn't affected by the institution's subsequent loss of eligibility.
The educational institution should be able to tell you if it is an eligible educational institution.

Adjustments to qualified education expenses.(p137)

You must reduce your qualified education expenses by certain tax-free items (such as the tax-free part of scholarships and fellowship grants). See chapter 4 of Pub. 970 for details.

Include as Interest(p137)

In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest.

Loan origination fee. (p137)

In general, this is a one-time fee charged by the lender when a loan is made. To be deductible as interest, the fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. A loan origination fee treated as interest accrues over the life of the loan.

Capitalized interest.(p137)

This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan.

Interest on revolving lines of credit. (p137)

This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. See Qualified Education Expenses, earlier.

Interest on refinanced student loans. (p137)

This includes interest on both:
If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you can't deduct any interest paid on the refinanced loan.

Do Not Include as Interest(p137)

You can't claim a student loan interest deduction for any of the following items.

Can You Claim the Deduction?(p137)

Generally, you can claim the deduction if all of the following requirements are met.

Interest paid by others. (p137)

If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. See chapter 4 of Pub. 970 for more information.

No Double Benefit Allowed(p137)

You can't deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, home mortgage interest).

How Much Can You Deduct?(p137)

Your student loan interest deduction is generally the smaller of:
However, the amount determined above is phased out (gradually reduced) if your MAGI is between $65,000 and $80,000 ($130,000 and $160,000 if you file a joint return). You can't take a student loan interest deduction if your MAGI is $80,000 or more ($160,000 or more if you file a joint return). For details on figuring your MAGI, see chapter 4 of Pub. 970.

How Do You Figure the Deduction?(p137)

Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the Form 1040 or Form 1040A instructions. However, if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1 in chapter 4 of Pub. 970.
To help you figure your student loan interest deduction, you should receive Form 1098-E, Student Loan Interest Statement. Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2016 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2017.
For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. However, if you pay qualifying interest that isn't included on Form 1098-E, you can also deduct those amounts. For information on allocating payments between interest and principal, see chapter 4 of Pub. 970.
To claim the deduction, enter the allowable amount on Form 1040, line 33, or Form 1040A, line 18.