Question about student loan interest tax deduction

[SB100]

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I have a very generous grandmother who helped me pay off most of my student loan interest before it capitalizes this year. This may be a dumb question, but can my grandmother or I declare the student loan interest tax deduction for 2013, or does the payment have to come directly from me? I have a photocopy of the check and cover letter sent to Direct Loan.

 

[DrMidlife]

Generally no to the whole thing, and you might want to renegotiate.

Her money is a gift to you, and if that gift was over $13k, you have to report it as income. Tuition and medical expenses paid as gifts aren't taxable for the recipient, but loan interest appears to be taxable.

Student loan interest is only deductible on your return, only up to $2500, for the year it accrues. You can't back-deduct interest earned over multiple years.

This stuff is easily googleable. Here's an IRS link to get you started: http://www.irs.gov/taxtopics/tc456.html

 

[The White Coat Investor]

That didn't make much sense.

Gifts of more than $13K aren't taxable to you. They reduce your grandmother's estate tax exemption. Honestly probably doesn't matter unless she's really rich ($5M-10M) when she dies.

Student loan interest is deductible to you only, and only while your income is below a certain amount (~ $120K or so), and only up to $2500 per year. It's not deductible to her. Sorry. Be cool if it was eh?

Hope you told her thanks.

 

[dpmd]

Generally no to the whole thing, and you might want to renegotiate.

Her money is a gift to you, and if that gift was over $13k, you have to report it as income. Tuition and medical expenses paid as gifts aren't taxable for the recipient, but loan interest appears to be taxable.

Student loan interest is only deductible on your return, only up to $2500, for the year it accrues. You can't back-deduct interest earned over multiple years.

This stuff is easily googleable. Here's an IRS link to get you started: http://www.irs.gov/taxtopics/tc456.html

Gifts are not income and the person receiving the gift never has to pay the taxes on it (although I guess there are circumstances where they can volunteer to do so). The person giving the gift may be responsible for the gift tax if the amount exceeds the exclusion limit (14K for 2013). I agree with the recommendation to check out the irs.gov site for confirmation and any other questions about it.

 

[Stroganoff]

IRS Publication 970 really helped me out on my question of deducting capitalized interest and how that is calculated. I was able to deduct more than I thought -- not just accrued interest but also interest that had capitalized into principal.

If you grandmother gave you that money and then you paid with your name, it's fair game. If your grandmother sent Direct Loans payment directly, I don't think you would be able to deduct (but don't quote me on that -- definitely check!).

PS. Tell your grandma we're long lost cousins. I'm jealous!

 

[dpmd]

IRS Publication 970 really helped me out on my question of deducting capitalized interest and how that is calculated. I was able to deduct more than I thought -- not just accrued interest but also interest that had capitalized into principal.

If you grandmother gave you that money and then you paid with your name, it's fair game. If your grandmother sent Direct Loans payment directly, I don't think you would be able to deduct (but don't quote me on that -- definitely check!).

PS. Tell your grandma we're long lost cousins. I'm jealous!

I would guess that money paid to the lender by any other person would still show up on the interest paid statement (1098 if I remember correctly) for the person who owes on the loan. In that case it should be totally legit to deduct. Good point on the capitalized interest. I bet a lot of people don't realize that counts.