Tax question about interest

[gstrub]

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So I had a 14,000 private loan that came into repayment in September. I applied for and received a private consolidation loan, which took the interest I had built up and the principal and formed a new loan for 17,000. I just paid off 8000 (which included the 3000 interest that had originally built, plus 600 in new interest).

Shouldn't I be able to deduct the original interest (~3000)? The bank is telling me that once the interest is capitalized, I can no longer get credit for paying for it, but I've read otherwise on this forum. Anyone know the answer?

 

[dpmd]

If you had paid the interest before the loan consolidation, then absolutely you would have been able to claim it. However, it appears what they did was capitalize it and made it part of your principal of the original loan prior to consolidating it. Since you paid after they did that they are treating it as a principal payment. I don't know where you read otherwise, but I think you are stuck.

 

[AMDFAO]

interest capitalized on an educational loan is considered paid by the borrower in the tax year it occurred. If you go to www.irs.gov and pull up Publication 970 there is an entire section describing what is allowed. Origination fees etc are also considered deductible as student loan interest as well. Your lender should be sending you a 1098 E documenting the amount of interest paid since it is over $600 (capitalized for you) sometime in the next week or so or you may be able to simply print it off their homepage. The max deduction is $2500 and phases out as your income rises.

 

[dpmd]

After seeing my 1098 E this year I realized that what I said earlier was a load of crap. Capitalized interest does indeed count as interest paid. Sorry for running off at the mouth without engaging the brain.😳

 

[Doctor Bagel]

Can you deduct interest from private loans? I thought it was just for the governmental loans.

Editing that I guess you can. Here are the official rules from the IRS. It appears that capitalized interest is indeed deductible provided that you paid money on student loans in that year --

http://taxes.about.com/gi/dynamic/o...p%3A//www.irs.gov/publications/p970/ch04.html

 

[AMDFAO]

Private education loans are included. Once it is capitalized it is considered paid by the borrower (meaning you don't have to have written a check).

 

[gstrub]

I was under the impression that the 1098 form I will get from this bank will say $690 for qualified interest, even though I paid capitilized interest. Can I just write in $2500 because I can show the check I wrote?