You may be able to deduct up to $2,500 of the interest you pay on student loans on your federal individual income tax return. This deduction represents higher education (what comes after high-school) and certain vocational school expenses. The interest you pay is reported on form 1098-E, Student Loan Interest Statement. The deduction is not limited to government-sponsored loans, but does not apply to loans made to students by family members.
Sadly, you must meet a host of rules before you can nail down this deduction. The main rule is that if you are single, the deduction slowly gets phased away after your income hits $55,000. It totally disappears altogether at $70,000 ($110,000 and $140,000 if you file a joint return).
You are eligible to take the interest deduction if you paid interest on your own student loan, your spouse’s, or a person who is your dependent. An eligible student is one who is enrolled at least half-time in a program that leads to a degree, certificate, or other recognized educational credential.
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Qualified expenditures are the total cost of attending an eligible educational institution (including graduate school) tuition and fees, room and board, and books.