If you’re currently paying down your student loan debt, you may be well aware that your total monthly payments are a bit of principal, loaded with interest. But did you know that you can deduct some — maybe even all — of that interest on your taxes?
Now that the flurry of tax prep season is here, the chance to get some of this money back in your pocket is possible by making sure you fill out and file a student loan interest tax form called the 1098-E.
7 common questions about the 1098-E, answered
Now’s your chance to fill one out and take advantage of some potential student loan tax breaks. Keep reading to find out how.
1. What exactly is the 1098-E form?
Officially known as the Student Loan Interest Statement, it’s a tax form all of your student loan lenders must send you noting how much interest you paid during the tax year.
This form allows eligible borrowers to claim a partial or full deduction on that interest paid when filing taxes.
The 1098-E should not be confused with 1098-T, a tuition statement. Also, keep in mind that just because you receive a 1098-E does not mean you automatically qualify for the deduction.
2. How can I qualify for an interest deduction?
The interest deduction can be claimed if your student loans were used to cover qualifying expenses for yourself, a dependent, or a spouse, and it must have been taken out to pay for expenses like tuition, fees, school supplies, textbooks, and/or transportation costs. Room and board may be included under some circumstances.
The minimum to qualify for a deduction is if you paid $600 or more in student loan interest last year.
One thing that’s important to note is only the person who is legally obligated to repay the loan can claim the deduction. So if Mom or Dad made payments for you, but your loans are in your name, only you can take the deduction.
However, if they claim you as a dependent, you won’t be able to receive a tax break, even if the loan is in your name.
3. How do I get my hands on a 1098-E?
If you meet or exceed the $600 minimum, your lender(s) will mail you a student loan interest tax form. If you’re certain you qualify, but haven’t seen any sign of a 1098-E yet, you can check on your loan servicer’s website for info, according to the U.S. Department of Education.
Note: you don’t need a physical, paper copy of your 1098-E in order to file taxes.
4. What’s the total amount of interest I can deduct?
The maximum amount you’re allowed for a 1098-E deduction is $2,500 in interest.
5. How do I know how much I paid in interest last year?
The 1098-E is a statement, so it will list all the interest included in your loan payments, up through 5 p.m. on December 31, 2015. You’ll be able to see the total amount in Box 1 of the form. (More on reading the form below.)
6. Are there any exceptions to deducting student loan interest?
There are two main scenarios when you won’t be eligible to deduct interest, even if you meet the $600 minimum:
- You’re married, but filing your taxes separately;
- Your MAGI — or Modified Adjusted Gross Income — totaled $80,000 or more for single filers, $160,000 jointly.
7. Do I need to itemize my deductions?
No. Since the interest deduction is simply an adjustment of your modified gross income, or an “above the line” deduction, there’s no need to itemize it.
Entering 1098-E information on your taxes
There are two boxes on the 1098-E form you’ll use to fill out your tax return: Box 1 and Box 2.
Like we mentioned above, Box 1 is your student loan interest summary; it’s the total dollar amount you paid in interest during the tax year. (Remember: Box 1 only lists interest paid, not your total loan payments.)
Box 1 may also list any loan origination fees or capitalized interest, if you took out your loan on Sept. 1, 2004 or later.
For any loans opened before Sept. 1, 2004, you may qualify to deduct those origination fees or capitalized interest. Those won’t be reported in Box 1, but you’ll see a check mark in Box 2. Otherwise, it’ll likely be empty.
Once you’ve got everything filled out, it’s up to you to file your 1098-E either by mail or electronically.
If you’re lucky enough to get a refund from the IRS this year, consider putting some or all of it toward extra student loan payments. That way, you can pay off your loans faster and put future savings toward your major life goals.