WHAT YOU NEED TO KNOW ABOUT STUDENT LOAN INTEREST

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WHAT YOU NEED TO KNOW ABOUT STUDENT LOAN
INTEREST
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• If you are considering borrowing funds to finance
  your college education or that of your spouse or
  children, it is important that you understand
  that the student loan interest deduction is not
  limited to the interest paid on government
  student loans. In fact, virtually any loan
  interest will qualify as long as the loan
  proceeds are used solely for qualified
  higher-education expenses (that is, it is a
  sole-purpose loan). However, the maximum interest
  that is deductible each year is 2,500. Thus, in
  addition to government student loans, home equity
  lines of credit, personal loans from unrelated
  parties, and even credit cards can be used if
  they otherwise qualify. Pension plan loans and
  loans from related parties do not qualify.

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• Example 1  Jack takes out an equity line of
  credit on his home and borrows 30,000 to finance
  a solar electric installation on his home and
  10,000 to pay his daughters qualified education
  expenses. Because this loan is not used for a
  single purpose (he used it to borrow funds for
  more than education), he cannot deduct a portion
  of the interest as above-the-line education loan
  interest. However, Jack can still deduct the
  prorated interest on the solar installation as
  home-acquisition debt if the total debt does not
  exceed the acquisition debt limits. If Jack had
  only used the loan to pay for qualified education
  expenses, then up to 2,500 of the loan interest
  could have been deducted as above-the-line
  student loan interest.

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• Example 2  Mark has a Visa card that he uses
  for a variety of purposes, and he also uses it to
  pay his daughters qualified education expenses.
  Because the credit card is not used exclusively
  to pay for qualified education expenses, none of
  the interest will qualify as student loan
  interest. However, if Jack had only used the
  credit card to pay for qualified education
  expenses, then up to 2,500 of the credit card
  interest could have been deducted as
  above-the-line student loan interest. Caution
  Although we use a credit card as an example of an
  alternate student loan, it is not practical
  because of the high interest rates.

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• If a loan is not subsidized, guaranteed,
  financed, or otherwise treated as a student loan
  under a program of the federal, state, or local
  government or an eligible educational
  institution, a payee (the lender) must request a
  certification from the payer (the borrower) that
  the loan will be used solely to pay for qualified
  higher-education expenses. Form W-9S, Request for
  Students or Borrowers Social Security Number
  and Certification, is provided by the IRS for
  this purpose.You can claim a deduction for
  student loan interest whether you claim the
  standard deduction or you itemize your deductions
  since it is an adjustment to income, often
  referred to as an above-the-line deduction.To
  qualify as an eligible loan, the loan must have
  been taken out solely to pay the costs of
  attending an eligible educational institution for
  an individual during a period when the individual
  is a qualified student. Eligible costs include

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• Tuition 
• Fees 
• Room and board 
• Books and equipment 
• Other necessary expenses (including
  transportation)
• The expense must be incurred within a
  reasonable time before or after the debt is
  incurred. The regulations provide that a loan is
  incurred within a reasonable period if 

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• The expenses are paid with the proceeds of a loan
  from a federal post-secondary education loan
  program or 
• The expenses are related to a particular academic
  period and the loan proceeds used to pay the
  expenses are disbursed within a period that
  begins 90 days prior to the start of, and ends 90
  days after the end of, that academic period. A
  home equity line of credit can be used to meet
  these requirements by paying education expenses
  as they become due, provided that the loan is not
  used for any other purpose.

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• Such expenses must be reduced by the
  followingIncome excluded from employer-provided
  educational assistance
• Income excluded from U.S. savings bonds used to
  pay higher-education expenses
• Nontaxable distributions from Coverdell ESAs
  and
• Scholarships, allowances, or other payments (such
  as distributions from Sec. 529 plans) that are
  excludable from gross income.

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• Eligible educational institutions  Eligible
  educational institutions are colleges,
  universities, and vocational schools eligible to
  participate in the Department of Educations
  student aid programs (in other words, virtually
  all accredited public and private post-secondary
  schools). In addition, institutions conducting
  internship or residency programs leading to
  degrees or certificates awarded by a higher
  education institution, a hospital, or a
  healthcare facility that offers postgraduate
  training also qualify.Eligible student  An
  eligible student is one enrolled in a degree or
  certificate program who is at least a half-time
  student. What constitutes half the normal course
  load will be determined by the definition of the
  school being attended. Generally, a full-time
  student is one carrying at least 12 units.

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• Who Claims the Interest  The above-the-line
  interest deduction may only be claimed by a
  person who is legally obligated to make the
  payments on the qualified educational loan.
  However, tax regulations allow payments on
  above-the-line education interest made by someone
  other than the taxpayer/borrower to be treated as
  a gift, allowing the interest to be deductible by
  the taxpayer.Not Available to Higher-Income
  Taxpayers  The deduction is ratably phased-out
  for taxpayers with an AGI (income) of 70,000 to
  85,000 (140,000 to 170,000 for joint returns)
  and not allowed at all for taxpayers filing as
  married separate or an individual who is a
  dependent of another. The amounts shown are for
  2019 contact this office for the amounts for
  other years.If you are considering borrowing
  money to pay for higher-education expenses, it
  may be appropriate to consult with this office
  since there are other limitations. Please call
  for assistance.

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• Phone - [phone]
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