Student loan interest deduction

[Caffeine Free]

"Student loan interest. You can deduct up to $2,500 of student loan interest paid during the year, assuming you are not being claimed as a dependent on your parents' tax return. This write-off is available regardless of whether you itemize. If your parents paid interest on a loan for which you were liable, they can't claim the deduction, but you may qualify to do so. The right to claim this deduction phases out at higher income levels."

1. You paid interest on a qualified student loan in tax year 2007
2. Your filing status is not married filing separately
3. Your modified adjusted gross income is less than $65,000 ($135,000 if filing jointly)
4. You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's return

For any residents that have already filed taxes and made this deduction. I have a question on number 1.

What does it mean by "paid"? Is the process of accruing interest on my student loans sufficient to make a deduction or do I have to pay the lender the interest that has accrued monthly to make this deduction on my taxes?

Also, for the unsubsidized loans you have deferred, do any of you make payments on just the interest to take this deduction?

Also, any changes in number 3?

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[dragonfly99]

No, having accrued the interest isn't enough...you actually have to have PAID interest on your loans.

Yes, I have/did make payments (less than the usually monthly payment) on my student loans the first 6 months out of residency in order to get the tax deduction. You should too, even if it's just a couple hundred dollars a month. It's basically guaranteeing you a tax rebate, so you should do it if there's any possible way you can.

 

[Winged Scapula]

Remember, though your deductions (if you itemize) have to be more than the standard deduction allowed, otherwise it doesn't make much sense to use them.

So if you're single, with no children, don't own a home and have no other deductions, it makes more sense to take the standard than the student loan one (which is less).

 

[TysonCook]

I believe if the interest is compounded "pseudo-paid" it also qualifies, although I need to look into it again.... There was discussion of this in the finance forums.👍

 

[yadayadadude]

WS, the student loan deduction is an above-the-line deduction ... doesn't matter if you itemize.

 

[Winged Scapula]

WS, the student loan deduction is an above-the-line deduction ... doesn't matter if you itemize.

Ah...thank you for the clarification.

 

[Caffeine Free]

Ok, thanks to all that replied. I'm going to start making payments on my interest.

"Moving expense to take first job. Here's an interesting dichotomy: Job-hunting expenses incurred while looking for your first job are not deductible; but moving expenses to get to that first job are. And you get this write-off even if you don't itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area, including 20 cents a mile (and parking fees and tolls) for driving your own car."

For any resident who has taken this deduction, what does it mean by first job? First job out of medical school? I'm sure almost every student has worked prior to graduating from medical school, making there first year in residency "officially" not their first job.

 

[Winged Scapula]

There are dozens of threads about deduction for moving expenses, etc. for residency and whether or not residency is considered a job (most say it is not, and that you cannot deduct expenses, but you will find several who disagree). Please do a search for these threads.

 

[LADoc00]

Remember, though your deductions (if you itemize) have to be more than the standard deduction allowed, otherwise it doesn't make much sense to use them.

So if you're single, with no children, don't own a home and have no other deductions, it makes more sense to take the standard than the student loan one (which is less).

Yes. The government has attempted to guarantee there is basically no way for docs to get interest deductions due to this, sucks but true.

Vote Dem for more of the same logic....I dare you.

 

[Law2Doc]

Vote Dem for more of the same logic....I dare you.

Um, many of the business deductions, like this one, were actually eliminated during the Reagan years, when the game plan was to offer a lower tax rate with fewer loopholes. (and most of the student loan interest deductions, like the one mentioned above, were given out during Clinton, I believe.)