If you have student loans, don’t forget about them at tax time. Student loans can impact your federal income tax return in several ways, from reducing your taxable income to losing your refund, depending on your situation. Here’s what you need to know.
3 Ways Student Loans Impact Your Income Taxes
1. You May Qualify for the Student Loan Interest Deduction
You can deduct the interest you pay on your student loans. Deducting student interest lowers your adjusted gross income (AGI), which can help you qualify for other deductions and tax credits with AGI limits. However, you’re limited to deducting $2,500 of student loan interest, and there are a few other rules and limits to keep in mind.
First, your deduction may be limited or eliminated if you make too much income.
For 2021 tax returns (the ones due Apr. 18 this year), you get the full deduction if your modified adjusted gross income (MAGI) is $70,000 or less if you’re a single filer, head of household or a qualifying widow(er). For married couples who file a joint tax return, the amount increases to $140,000.