You can deduct up to $2,500 in student loan interest. The deduction is taken as an adjustment to income, so you can take the deduction even if you donít itemize deductions on Schedule A of your 1040. The deduction is phased out for taxpayers with adjusted gross incomes of $50,000 to $65,000 (single filers) and $100,000 to $130,000 (married filing jointly). Taxpayers who are married but file separate returns are not eligible.
The Federal Government now allows individuals to deduct the interest paid on loans taken out to attend eligible educational institutions. This is happening through the Taxpayer Relief Act of 1997.
You may receive this deduction during the first 60-months in which interest payments are required. However, beginning in 2002, this limit will be removed for all eligible loans, including those that have been in repayment for more than 60-months. If you are in deferment or in forbearance, that time is not included in your 60 month period. Interest payments made while you are still attending school or in your grace period are not eligible for the tax deduction, as these payments are paid prior to the beginning of your covered period.
The maximum student loan interest deduction for 2001 is $2,000, but beginning in 2002, single filers will be able to deduct $2,500. In 2001, the student loan interest deduction is phased out for singles with incomes between $40,000 and $55,000. However, in 2002, singles with incomes between $50,000 to $65,000 will be phased out. The information provided above is not a tax advice. Consult your tax advisor for information about tax ramifications of consolidating your loans.
If you have any questions about federal loan consolidation tax benefits, please email us or call (800) 821-5659 to talk to an expert loan advisor.
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My consolidation with EdFed has been a great experience and I am happy to recommend everyone I know to you. Thank you for your help. - Jeffrey R. Baltimore, MD