Loan interest deduction

[DCDAWG]

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Hi all,

Just got a signing bonus and would like to pay down some of my loans that I havent touched during residency.
Questions: I imagine I can deduct the student loan interest on my taxes this year if I pay before December 31. Am I correct in that one cannot deduct more than 2500k total?

Can I only deduct interest accrued this year? Say I have a residency relocation loan from 3 years ago for 10K, over 3 yrs it has accrued to 12k. Could I pay 2K toward that loan and then claim 2k in deductions, or would it have to be the 600 or 700 or so that loan accrued just this year?


Thanks for your help!

 

[RangerBob]

Hi all,

Just got a signing bonus and would like to pay down some of my loans that I havent touched during residency.
Questions: I imagine I can deduct the student loan interest on my taxes this year if I pay before December 31. Am I correct in that one cannot deduct more than 2500k total?

Can I only deduct interest accrued this year? Say I have a residency relocation loan from 3 years ago for 10K, over 3 yrs it has accrued to 12k. Could I pay 2K toward that loan and then claim 2k in deductions, or would it have to be the 600 or 700 or so that loan accrued just this year?


Thanks for your help!

I don't know about the rule for interest accrual--I have more than enough accruing each year among all my loans that it's not something I ever bothered to look into.

But you are correct that you cannot deduct any more than $2500, though it begins to phase out at certain incomes. If you're a resident (or if your AGI is near a resident's salary for the 2013 tax year) then you shouldn't have any problem. If you're making a lot more, then you may not qualify for much or any student loan interest deduction.

 

[freaker]

Hi all,

Just got a signing bonus and would like to pay down some of my loans that I havent touched during residency.
Questions: I imagine I can deduct the student loan interest on my taxes this year if I pay before December 31. Am I correct in that one cannot deduct more than 2500k total?

Can I only deduct interest accrued this year? Say I have a residency relocation loan from 3 years ago for 10K, over 3 yrs it has accrued to 12k. Could I pay 2K toward that loan and then claim 2k in deductions, or would it have to be the 600 or 700 or so that loan accrued just this year?


Thanks for your help!

You cannot deduct interest accrual. You can only deduct the amount of interest you paid, which maxes out at a $2,500 deduction. Most physicians are going to end up paying way more than this. As a resident on IBR with a large family, I just about maxed it out.

Note, your mean adjusted gross income (MAGI) cannot exceed $75,000 for single filers or $150,000 for married filing jointly filers.

http://www.irs.gov/publications/p970/ch04.html

 

[The White Coat Investor]

Essentially, residents get a $2500 deduction and attendings get squat. Student loans are also not dischargeable in bankruptcy and, these days, are at relatively high rates. It would behoove most attendings to refinance their homes and convert the student loans into mortgages- then it is at a lower rate, it's dischargeable in bankruptcy, and it is most likely fully deductible.

 

[thesauce]

Hi all,

Just got a signing bonus and would like to pay down some of my loans that I havent touched during residency.
Questions: I imagine I can deduct the student loan interest on my taxes this year if I pay before December 31. Am I correct in that one cannot deduct more than 2500k total?

Can I only deduct interest accrued this year? Say I have a residency relocation loan from 3 years ago for 10K, over 3 yrs it has accrued to 12k. Could I pay 2K toward that loan and then claim 2k in deductions, or would it have to be the 600 or 700 or so that loan accrued just this year?


Thanks for your help!

You can deduct the interest in the year you paid it, regardless of when it was accrued

 

[DCDAWG]

You can deduct the interest in the year you paid it, regardless of when it was accrued

Thanks, thats exactly what I was looking for. How do you know this, can anyone confirm that?
Also, stpudi question: when paying that- do you have to specify/get it in writing that you are paying the interest? If I call the place and say I want to pay 2500 toward the principal from this loan- can I deduct that as interest if it has accrued 2500 over the past 3 yrs?

Thanks!

 

[thesauce]

Thanks, thats exactly what I was looking for. How do you know this, can anyone confirm that?
Also, stpudi question: when paying that- do you have to specify/get it in writing that you are paying the interest? If I call the place and say I want to pay 2500 toward the principal from this loan- can I deduct that as interest if it has accrued 2500 over the past 3 yrs?

Thanks!

Rules can be found on IRS.gov

Your lender will send you a tax statement in January listing the interest you paid.

No, you don't have to specify that you are paying interest since you are generally required to pay accrued interest first. Principle-only payments would not be deductible.

 

[dpmd]

If all your interest has already capitalized, you will have to check the IRS rules on whether they consider that interest as having been paid when it capitalizes or if there is some other way to account for it (or if it is just out of the picture tax wise). But if you still have 2500 of interest that you can pay this year then that isn't an issue (and it is not necessary to indicate you want to pay interest since the servicers will always apply payments to unpaid fees/penalties then interest before touching principal. If you end up being able to make big extra payments you will have to keep an eye on things to make sure it gets applied to principal instead of just prepaying future interest (those bastards want you on the hook for as much as possible and you have to do special things to makes sure extra principal payments are applied correctly)