Updated for Tax Year 2014
If you paid interest on a qualified student loan, you may be able to deduct some or even all of that interest on your federal income tax return. Student loan companies use IRS Form 1098-E to report how much you paid in interest. Borrowers get a copy of this form, and so does the IRS.
Who sends Form 1098-E?
The 1098-E is sent out by loan “servicers” — companies that collect loan payments. Some lenders service their own loans; others hire an outside company to handle it. Loan servicers must send a 1098-E to anyone who pays at least $600 in student loan interest, and they generally must send the forms out by the end of January. If you have outstanding loans with more than one servicer, you may receive multiple 1098-E forms.
If you don’t receive the 1098-E
If you paid less than $600 in interest, you might not get a 1098-E form. If you don’t receive a form, the U.S. Department of Education says you should contact your loan servicer to find out how much you paid in interest.
Check for a phone number on statements sent to you by the servicer. The home page of the servicer’s website should also have information about getting a 1098-E, advises the Education Department. If you have an online account with your student loan servicer, you may be able to login and download an interest statement as well.
What you use it for
You use the 1098-E to figure your student loan interest deduction. You can deduct up to $2,500 worth of student loan interest from your taxable income as long as you meet certain conditions:
• The interest was your legal obligation to pay, not someone else’s
• Your filing status is not married filing separately
• Neither you nor your spouse, if you’re filing a joint return, is claimed as a dependent on anyone else’s tax return
• Your income is below the annual limit
You don’t have to itemize your deductions to claim the student loan interest deduction, but you do have to file your tax return using either Form 1040 or Form 1040A. The deduction isn’t available to those who file the 1040EZ.
Eligibility for the student loan interest deduction is based on your modified adjusted gross income (MAGI). This is a number you calculate when you fill out your tax return. Your deduction is reduced or eliminated at higher income brackets. As of the 2014 tax year:
• For single taxpayers, the deduction is reduced once you have $65,000 of modified AGI and eliminated at $80,000
• For married taxpayers, the deduction is reduced at $130,000 of modified AGI and eliminated at $160,000
Reference: Tax Guides