Whether you borrowed parent plus loans, cosigned private loans, make payments on your child’s student loans for them, your child borrowed their own loans, or you have a combination of these options – you need to know what you are responsible for and who gets to reap the rewards of the student loan interest deduction.
Student Loan Interest Deduction Basics
If you made student loan payments on a student loan in your name, you can deduct up to $2,500 of the interest you paid. The “up to” is because there are income limits based on modified adjusted gross income (MAGI): $60,000 for single individuals and $120,000 for married couples to receive the full deduction. You get a partial deduction if your income is within 25% above your limit. Married filing separately is the only filing status that doesn’t qualify for this deduction.
But Who Gets the Tax Break, You or Your Offspring? See the table below:
|Type of Loan||Responsibility Level||Tax Rewards|
|Parent Plus Loans||You are liable for repayment.||You get to deduct student loan interest on your taxes.|
|Cosigned Private Loans||You are equally liable for loan repayment as your children.||Even though you cosigned for your son or daughter, your child is the primary signer and get’s the deduction.|
|Making Payments on Your Childs Loans||You can stop making payments at any time. Preferably, you’ll let your offspring know first.||Your kids get the student loan interest deduction. As far as the IRS goes, it’s whoever borrowed the money, get’s the tax break.|
|Your kids took out their own loans: federal or private||They are completely responsible for their own payments.||Your kids can use the student loan interest deduction.|
For more on the student loan tax deduction checkout interviews form TurboTax and the IRS in my new book CliffsNotes Graduation Debt: How to Manage Student Loans and Live Your Life.