Several tax deductions were eliminated as part of the Tax Cuts and Jobs Act, but fortunately for Americans with student loan debt, the student loan interest deduction wasn't one of them.
Millions of Americans have student loan debt, and the student loan interest deduction can help to alleviate some of the burden of paying it back. With that in mind, here's what Americans who make student loan payments need to know about this valuable deduction in 2019.
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How much student loan interest can you deduct?
If you have qualifying student loan debt, you can deduct the interest you paid on the loan during the tax year. This is capped at $2,500 in total interest per return, not per person, each year. In other words, if you're single, you can deduct as much as $2,500 of student loan interest. However, if you're married and file a joint return, you and your spouse can only deduct a total of $2,500, even if both spouses have student loan debt.
If your student loans are officially called "student loans," such as Federal Direct Loans or a student loan through a private lender, you should receive a Form 1098-E, Student Loan Interest Statement, that tells you how much you paid in interest throughout the year. If you borrowed for qualified educational expenses in other ways (more on that later), you may need to review statements to determine your interest expense.
Income limitations
Like many tax breaks, the student loan interest deduction is designed to provide tax relief to Americans with low to moderate incomes. So, the ability to take the deduction begins to phase out above a certain MAGI (modified adjusted gross income) level.
For the 2018 tax year -- the return you file in 2019 -- here's the phaseout limitations:
| Tax Filing Status | Deduction Starts to Phase Out With MAGI Above... | Deduction Is Eliminated Completely With MAGI Above... |
|---|---|---|
| Single, head of household, qualified widow(er) | $65,000 | $80,000 |
| Married filing jointly | $135,000 | $165,000 |
Data source: IRS. (Note: If you file as "married filing separately," you can't use the student loan interest deduction at all.)
For the 2019 tax year -- the return you'll file in 2020 -- the income thresholds are increasing:
| Tax Filing Status | Deduction Starts to Phase Out With MAGI Above... | Deduction Is Eliminated Completely With MAGI Above... |
|---|---|---|
| Single, head of household, qualified widow(er) | $70,000 | $85,000 |
| Married filing jointly | $140,000 | $170,000 |
Data source: IRS.
Here's how this works. Let's say that you have at least $2,500 in student loan interest. If your MAGI (for most taxpayers, MAGI is the same as AGI, or adjusted gross income) is at or below the lower threshold for your filing status, you can deduct the entire $2,500. If your MAGI is greater than the higher threshold, you can't deduct any of it. And if your MAGI falls between the two thresholds, you are entitled to a partial deduction.