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Claiming Deductions on Student Loan Payments

The taxpayer, his or her spouse, or dependent can use this relatively new student loan deduction to save up to $2000 on interest paid on a student loan for up to 60 months after the loan was acquired.

The student no longer has to itemize their deductions. But this deduction does carry some restrictions on it. For one thing, it cannot be claimed by anyone, fully or partially, with an adjusted gross income over $72,000 when married and filing jointly and $55,000 for single filing. Married and filing jointly with income below $60,000 and singles filing with income below $40,000 can claim the full deduction.

Parents who meet the above requirement can deduct interest paid on a loan they took out for a dependent child, but if the loan is in the child's name, they can't deduct the interest. Then only the child can deduct the interest but even then he or she has to file a tax return on his or her own. They can't be a dependent and still claim tax deduction. Once their parents no longer claim them as dependents, they can claim the interest as tax deductible.

Parents who took out home equity loans to pay for their children's college educations can claim the interest they pay on this loan as tax deductible but only as the mortgage interest deduction on Schedule A of Form 1040.