Getting Tax Benefits For Student Loans

Getting Tax Benefits For Student Loans
College education is getting more expensive as the years go by. Many parents and students apply for financial aid, student loans, grants and scholarships to ensure that they can complete their four year university study. Most college students will take up at least one student loan during their tertiary education life.
One great thing about the subsidized student loans is that the payment can be deferred until you complete your college education. This even includes graduate school of you choose to continue your education after college. You only begin to make those payments after you graduate and get a job.
For student loans, there are tax benefits for students and/or their parents when it comes to repaying the loans. This is commonly known as student loan interest reduction and can be claimed on your tax. A student or their parents (whoever actually repays the loan) can claim $2,500 tax deduction for interest paid on a student loan in the first sixty months of the repayment.
The deduction can be claimed each year for the first five years of the loan. The main aim of the loan interest reduction is to assist the students and parents with the repayment of student loans. Normally, when students first get out of school,they may not be able to make a large sum of money and, in fact, the loan payments can take a big chunk of their paycheck. Thus, a tax deduction helps to lower the amount of taxable income for the tax-paying former student.
However, there are qualifications that the student loan has to meet in order to enjoy the benefits of the tax deduction. For a student loan to qualify, it must be used for educational expenses. If the loan was not used for these, none of the interest qualifies as tax deductible. The loan interest can be claimed even if the tax filer does not itemize deductions.
A student must have attended school at least half time when they secured the loan. The time spent at school has to be leading towards a degree, certificate, or diploma. Just taking classes without a declared major or course of study does not qualify the student for this tax benefit.
Qualified educational expenses include room and board, books, tuition, and fees. Transportation can be included if they are necessary costs related to education. You are not allowed to claim the deduction for someone else who is not a qualified claimant.
The student has to be you, your spouse, or a person who was a dependent of yours at the time they were in school. Even if you took out the loan two years ago, you may claim the deduction for the rest of the five year period on the student loan.
Furthermore, there is an income requirement. Joint filers who claim the student loan interest reduction will lose their deduction if their income is between $60,000 and $75,000. For a single filer, the income for phase -out is between $40,000 and $55,000.
In fact, a student loan can be used as one of the tools to finance your college education dream. The government gives you a break for the first five years to help you to repay those loans.
By knowing this, you can fully utilize the tax benefits of student loans.



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