Pay Attention to Income Limits for the Deduction for Student Loan Interest Payments
Student loan interest is interest the borrower pays on a student loan during the repayment period. Student loan borrowers (under a certain income limitation) may deduct the lesser of $2,500 or the amount of interest they actually paid during the tax year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.
For 2017, the available benefit of the student loan interest deduction is gradually reduced (phased out) if the taxpayer’s MAGI is between $65,000 and $80,000 ($135,000 and $165,000 if the taxpayer files a joint return). Student loan borrowers can’t claim the deduction if their MAGI is $80,000 or more ($165,000 or more if they file a joint return).
Be sure to check with your student loan servicer to figure out the amount of total interest paid during the year if your income is less than the required phaseout limits. While the benefit is only $2500 per taxable year, it is still a good way to save on your tax bill.
Home Buyers Beware: Starting in 2018 the Interest Deduction for Home Equity Loans is Restricted to Home Additions / Not Refinancing Student Loans
The Internal Revenue Service issued guidance in February indicating that, as of tax year 2018, taxpayers can continue deducting interest for home equity loans – however, the deduction would only be available for reasons “used to build an addition to an existing home.” For taxpayers that use a home equity loan for personal expenses such as to refinance credit card debt or other personal reasons (such as refinancing student loan debt) the interest deduction is not available.
The guidance by the IRS was released after several questions from taxpayers and tax advocates were received shortly after Congress and the President passed into law the Tax Cuts and Jobs Act of 2017. According to the IRS, the interest deduction is suspended for "interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.”
See the IRS Guidance released on February 21, 2018 for more information.
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