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George Saenz, the Bankrate.com Tax Talk columnistWho gets the PLUS-loan interest deduction?

Dear Tax Talk,
My daughter took out a Parent Plus loan for college. The loan is in my name. She has since graduated and has started to repay the loan. The interest is deductible, but since the loan is in my name, she cannot deduct the interest on her tax return. The institution said the name on the loan is mine and cannot be changed. Any comments?
-- Joe

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Dear Joe,
This appears to be the downside of a Parent Loan for Undergraduate Students, or PLUS. A PLUS loan is not a need-based loan but rather a credit-based loan.

Since the parent will usually have the good credit, he or she is the borrower and obligor -- that is, the person on the hook for the payments. Only the person legally obligated to repay the PLUS loan can claim the interest deduction. If your daughter makes the loan payments, you are treated as receiving the amount she paid and you can claim the deduction on your tax return if you are otherwise eligible.

In your situation, the impediment to eligibility would be if your adjusted gross income exceeds the threshold for deducting student loan interest. The amount of your student-loan-interest deduction is phased out (gradually reduced) if your modified adjusted gross income, or MAGI, is between $50,000 and $65,000 ($105,000 and $135,000 if you file a joint return).

You cannot take a student-loan-interest deduction if your MAGI is $65,000 or more ($135,000 or more if you file a joint return). For most taxpayers, MAGI is adjusted gross income as figured on their federal income tax returns before subtracting any deduction for student-loan interest. If you can claim the deduction, then you can share part of your tax refund with your daughter.

To ask a question on Tax Talk, go to the "Ask the Experts" page and select "taxes" as the topic.

Bankrate.com's corrections policy -- Posted: Oct. 31, 2006
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