How much of your student loan interest is tax deductible?

Question

Is it 50%? 100%? I'm trying to decide if it's a bigger benefit to pay it off early or later.

Answer 1

First of all are you student loans Federal Student Loans or Private Student Loans, as this will make a difference.

As long as your student loans are Federal Student Loans then you can deduct up to $2,500 of the interest paid. The deduction is reduced as your income increases though, and the Federal Student Loans must be qualified student loans in order to claim your deduction.

Also keep in mind that as of 2002 the interest can be deducted over the life of the loan, prior to 2002 you could only deduct interest paid during the first 60 months of repayment. For more information on your Federal Student Loan tax deduction eligibility please visit the source below.

Answer 2

EADave's answer is perfect for the question you asked.

Here's the answer to the one you're trying to answer for your self:

Generally, do not do something strictly for a tax benefit. In most cases you must spend money in tax-deductible ways. But, if you spend $100 and you are in a combined bracket of 20% you only saved $20. The better way is to ask "given thatafter tax this will cost me $80, iis it money well spent?".

Now, let's assume you are in that same combined bracket (20%), that your loan balance is $10000 payable over 5 years at 8%. If you make 60 monthly payments the total interest paid will be $2166. Assuming your AGI is not so high as to limit the deductibility the tax savings would be 20% of $2166 or $433. So the after-tax cost of paying over time is: 2166-433= $1733.

Since there is no tax benefit and no interest the cost to paying the loan early, the cost is zero.

So the difference between paying it off now or over it's term is $1766

But that's not the whole story: You need to take into account:

A: opportunity cost (if I have enough to pay the loan now, but I choose payments instead, can i get a tax-adjusted yield greater than 8%?)

B: Do I have other loans at a highre rate?

C: What impact will this loan have on my credit rating if I want to buy a home or a car? AND,

D: If paying this off gives me more discretionary income, how likely am I to spend it in unproductive ways?

Be sure to look at the bigger picture.

Answer 3

Your student loan interest is deductible up to $2500 per tax return. This deduction is phased out once your income exceeds $50000 if you are single and $100,000 if you are married.

If your income exceeds $65,000 if single, $135,000 if you are married--you get no deduction for student loan interest.

I have listed the IRS.GOV link.

Hope this helps.

Answer 4

It's all deductible assuming that you are under the income limts, but you never want to pay interest just to get a tax deduction.

Pay it off, if you can.

Answer 5

All of your student loan interest is tax-deductible, and you do not need to itemize to claim it.

Answer 6

All of it.

Answer 7

zero only h/l intt is exempted.