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Deducting student loan interest
Dear Tax Talk:
I recently graduated from college, and I am repaying the PLUS (Parent
Loan for Undergraduate Student) loans my parents' names took out
to pay for my education. I have made all the payments, but they
are not in my name. Am I able to deduct the student loan interest
on my taxes, or do my parents deduct it although they didn't make
the payments?
Leonie
Dear Leonie:
You'll need to determine if you're legally obligated to make the
payments to get the student loan interest deduction. You would be
considered legally obligated to repay the loan if the lender can
enforce collection of the loan from you.
An individual who is legally obligated and whose modified
adjusted gross income is below certain thresholds can claim a deduction
for interest paid on student loans incurred for themselves or their
dependents.
The deduction is claimed as an adjustment to gross
income, so you don't have to itemize deductions to qualify for the
deduction. It is claimed on line 24 of Form
1040.
The income thresholds were increased for 2001, so
you can qualify for the deduction if your modified adjusted gross
income is less than $55,000 ($75,000 for a married couple). A worksheet
on page 29 of the Form
1040 instructions will walk you through the adjustments that
you'll need to make if your income is near the threshold. The interest
is only deductible for the first 60 months of the loan during which
you're obligated to make payments.
If you're not obligated and your parents didn't make
the payments, they would not be entitled to the deduction either.
-- Posted: Jan. 15, 2002
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