529 Plan Details:
Enter your state:
World's Simplest College Calculator:
How old is your child?
Find a 529 Pro:
Enter your zip code:
Enroll In a 529 Plan:
Can I claim a deduction on college loan?
If I took out an Xpress Loan to finance my daughter's college, would the interest possibly be tax deductible? Yes, I itemize my deductions.
Thanks in advance.
The tax law allows a deduction of as much as $2,500 per year for interest paid on a loan taken out and used exclusively to pay college costs. The loan won't count if it came from a relative, from a related entity such as family-owned corporation, or from a 401(k) plan. And, since the deduction is claimed "above the line," it doesn't require that the taxpayer itemize on their tax return. However, a number of other requirements must be met in order to take advantage of this tax break.
The first thing I wonder about is who is legally obligated to pay the interest on the loan: you or your daughter? If her name is on the loan, she gets to claim the deduction on her tax return. She must meet the income limits described below and not have anyone else, such as you, claiming an exemption for her on their return. Even if you decide to make the loan payments for her, it's her deduction, not yours.
If the loan is in your name, and your daughter did not provide more than one-half her own support in the year you took out the loan (i.e. she was your dependent), then you become eligible to claim the deduction for the interest paid on the loan.
Assuming it's your loan, and that you are paying more than $2,500 in interest for the year, you'll get the full $2,500 deduction only if your modified adjusted gross income is below $50,000 (single) or $105,000 (married filing jointly). You'll receive a partial deduction if your income is between $50,000 and $65,000 (single) or $105,000 and $135,000 (joint).
These are the income limits for 2006, and they increase every year for inflation. You cannot claim the deduction if you are married filing separately.
It takes the IRS six full pages, including a 16-line work sheet, to describe the deduction for student loan interest in Publication 970, Tax Benefits for Education. You'll need to wade through all that material to be sure you can claim this particular tax break.
Other recent questions»Top 529 Plan Withdrawal Tips. (Video) (03/30/2017)
»What are the 3 biggest 529 plan myths? (Video) (03/17/2017)
»Does a 529 plan affect financial aid? (Video) (03/16/2017)
»How much does college cost? (Video) (03/15/2017)
»What Are The Top 7 Benefits Of 529 Plans? (Video) (03/14/2017)
»529s and Financial Aid (Video) (11/19/2014)
»What are the best ways to maximize the savings in my 529 plan? (Video) (10/14/2014)
»What are the steps involved in setting up a 529 account? (Video) (09/15/2014)
»What is the first step in getting started with a 529 plan? (Video) (09/05/2014)
»Coverdell ESA vs. 529 Plan: Which to choose? (Video) (07/15/2013)
»What is the best 529 plan for me? (Video) (07/10/2013)
»What happens to my 529 if my child gets a scholarship? (Video) (07/02/2013)
»Can grandparents open a 529? (Video) (06/20/2013)
»Do I have to use my own state's 529 plan? (Video) (06/12/2013)
»529 Plans: Tax Benefits of a 529 Plan (Video) (06/07/2013)
»What are the Pros & Cons of 529 plans? (Video) (05/30/2013)
»What is a 529 College Savings Plan? (Video) (05/21/2013)
»Expected addition to the the family (04/16/2013)
»Naming a successor to your 529 account (Video) (05/11/2012)
»Finding the Right Coverdell ESA (Video) (09/16/2011)
My College Savings
Help us personalize our site for you.