Paying back student loans

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I've read numerous times that student loans are tax deductible; what exactly does that mean? Does it mean that when you're doing your taxes you can deduct the amount you pay toward your student loan from you gross income like other deductions (ie. dependents), then pay taxes on your adjusted net income? If this is the case, I can envision paying them off quickly; but if the amount you pay comes from your adjusted net income, I can see it taking much longer.

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[ForgetMeNot]

I've read numerous times that student loans are tax deductible; what exactly does that mean? Does it mean that when you're doing your taxes you can deduct the amount you pay toward your student loan from you gross income like other deductions (ie. dependents), then pay taxes on your adjusted net income? If this is the case, I can envision paying them off quickly; but if the amount you pay comes from your adjusted net income, I can see it taking much longer.

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I was under the impression that you can only deduct the interest on your loans, not the entire amount you pay.
I haven't started my repayment period, though, so I can't definitively say.

 

[Trismegistus4]

I was under the impression that you can only deduct the interest on your loans, not the entire amount you pay.
I haven't started my repayment period, though, so I can't definitively say.

Not even. You deduct a portion of your interest, figured by some convoluted formula that takes your income into account. The more you make, the less you can deduct. The last time I did my taxes, I think I calculated the ceiling above which you receive NO deduction to be about $80k per year. So if you're repaying your loans in residency, you'll get a break, but if you're making 6 figures in private practice, forget it.

 

[Amy B]

I concurre, I wasn't able to get anything back also due to my husband's salary. It is based on how much money you make as to how much you can deduct.

 

[tlew12778]

Once you start paying back your loans, your lender will send you a letter each year detailing how much you have paid in interest and depending on the state in which you are resident, how much you can deduct.

When you do your taxes, if you use Turbotax, the program will ask you if you have paid interest on student loans and if so, how much.

 

[Amy B]

Turbo tax is GREAT program!!! I would highly reccomend it. You can go through everything online and then pay when you are done. I have used it for years and it has suggested deductions I didn't even think about.

It is VERY user friendly. It will ask you questions and you just fill in the blanks. It does all the hard work.

 

[off2skl]

Don't forget that if you or your spouse are working and you have paid income tax in a given school year you can deduct a percentage of your tuition (up to a 2K max deduction per student I think) as a Lifelong learning credit for that tax year.

 

[John Deere Gree]

Don't forget the lifetime learning credit (there's also another educational deduction but you can't take both) and the interest you pay on student loans (if eligible), nothing like reporting the the IRS that I made zilch these past few years.

 

[ArmCandy]

Don't forget that if you or your spouse are working and you have paid income tax in a given school year you can deduct a percentage of your tuition (up to a 2K max deduction per student I think) as a Lifelong learning credit for that tax year.

I think the lifelong learning credit can only be used once in your lifetime. So if you used it for undergrad you can't reuse it .

 

[ArmCandy]

Not even. You deduct a portion of your interest, figured by some convoluted formula that takes your income into account. The more you make, the less you can deduct. The last time I did my taxes, I think I calculated the ceiling above which you receive NO deduction to be about $80k per year. So if you're repaying your loans in residency, you'll get a break, but if you're making 6 figures in private practice, forget it.

Right you can only deduct the interest, and I think the intrerest paid has to exceed 2% of your gross income. Anything above that 2% is deductable. Not positive but pretty sure.

 

[mpp]

The lifetime learning credit can be taken every year if you qualify (it is a maximum $2000 credit meaning it reduces the tax you pay by a maximum of $2000). This is good for any higher education expenses (unlike the Hope credit which is for the first two years of undergraduate work only). You can't claim the credit if your adjusted gross income (AGI) is $51,000 or above...$103,000 if filing jointly. Unless your spouse make a lot of money and/or you don't pay any tuition/fees, nearly every non-dependent medical student should qualify for this credit. Of course if you pay no tax, you can't get any credit.

The student loan interest deduction is a maximum of $2500 year (it is a deduction meaning it reduces the amount of your income subject to tax). You get the full deduction if your AGI is less than $50,000 per year and the deduction is reduced until your AGI is $65,000 or above where you don't get a deduction. (Double those numbers for people fillng jointly).

 

[ArmCandy]

Oopps, looks like i got diagnosed with a case of H.I.A.S.

 

[Taurus]

Yeah, it sucks that if you make more than 50k you can't write off the interest. Better just to pay it all off as quickly as possible.

 

[southerndoc]

Remember, interest deductions are done when you pay back your student loans. Lifetime learning credit is obtained when you pay your tuition. Even if you financed your tuition, you deduct the lifetime learning credit the year the tuition was paid (even if by loans) and NOT when you repay your loans. Failure to realize this will result in significant heartache down the road. If you didn't work during medical school, then you can at least take the lifetime learning credit deduction your first year of internship. Don't forget it!

 

[organic]

I paid cash for the maximal amount I can have for " life time learning credit" and then paid with a loan for the rest.


a credit is full amount of money that you can get back for your tax payment.

A deduction is only to reduce your taxable income ( as mentioned before). A credit is better than a deduction if you can use one

S= taxable income
D= paid interest subjected to deduction
C=maximal amount of life time learning credit
20% tax bracket

paid tax
(1) with interest deduction
(S-D)20%=20%S- 20%D

(2) with life time learning credit
S20%-C

If C equals D, (2) is a better deal

So whenever it is possible, use credit first, and then interest deduction

everyone has said it very well, I just can't help but mention it again