How to Deduct Student Loan Interest (Up to $2,500)
Paying student loans is painful. But here is the silver lining: The IRS lets you deduct up to $2,500 of that interest from your income. The best part? You don’t need to be a tax expert or “itemize” to get it.
“Above the Line” Magic
Most tax breaks require you to “Itemize” (list every receipt). But not this one. It comes off the top, lowering your Adjusted Gross Income (AGI).
| Your Status | Did you pay interest? | Can you deduct? |
|---|---|---|
| Student | Yes | YES |
| Parent | Yes (Parent PLUS) | YES |
| Dependent | Yes | NO* |
| Scenario | Savings |
|---|---|
| 22% Bracket | Save ~$550 |
| 12% Bracket | Save ~$300 |
3 Steps to Claim Your Money
1. Wait for Form 1098-E
By January 31st, your loan servicer (Nelnet, Mohela, Aidvantage, etc.) will send you Form 1098-E.
Note: If you paid less than $600 in interest, they might not mail it. You have to log in and download it manually.
2. Look at Box 1
Box 1 shows the total interest you paid last year. This is your magic number.
(Limit is $2,500. If Box 1 says $4,000, you can still only enter $2,500).
3. Enter in Tax Software
In TurboTax/H&R Block, search for “Student Loan Interest.” Type in the number from Box 1. Done.
Pro Tip: “Capitalized Interest”
What if you haven’t started making payments yet?
The Graduation Surprise
Good News: When you start paying that off, the IRS treats that capitalized amount as INTEREST, not principal. So your deduction might be huge in your first year of repayment.