Tax tip of the day #47: Question: Hey Ron! My wife and I had over $5,000 in student loan interest paid last year, and we couldn’t itemize it at all…what the hell happened? Answer: Well, first of all, student loan interest is not an itemized deduction at all. It is considered to be an “above the line deduction,” meaning it is above “adjusted gross income” on the 1040. So even if you cannot itemize your deductions, you still may be able to deduct your student loan interest. Second, the reason you don’t see it on your return is because you made too much money to use it. For the student loan interest deduction, there is actually a phaseout. For a married couple filing jointly, in 2013 the phaseout begins at $125,000 and ends at $155,000. For filing single, the phaseout begins at $60,000 and ends at $75,000. The maximum amount of student loan interest you can claim as an “above the line” deduction is limited to $2,500. If your “modified” adjusted gross income is below the threshold, then you can deduct up to that $2,500 amount. If your modified adjusted gross income falls within the phaseout range, then your deduction is prorated. But if your modified adjusted gross income exceeds the upper bound of the phaseout, then you will not be able to take any of your student loan interest as a deduction. Since you and your wife’s modified adjusted gross income was around $175,000, your student loan interest was phased out. Apologies, etc. etc. You just made too much money! By the way, modified adjusted gross income is defined as follows: Modified adjusted gross income for the purpose of calculating the student loan interest deduction means adjusted gross income without taking into account any deductions for student loan interest, for tuition and fees, or for domestic production activity; and by adding back any of the following exclusions: the foreign earned income exclusion, the foreign housing exclusion, the foreign housing deduction, and the income exclusions for residents of American Samoa or Puerto Rico. It is also worth your time to read that the student loan interest deduction is not available for married couples filing separate. Thanks for reading and have a great day! Please keep the questions coming…except for you (you know who you are!)
Posted on: Mon, 17 Mar 2014 09:59:09 +0000
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