The Taxpayer Relief Act of 1997 permits borrowers to deduct
some of the interest paid on their student loans when they
file their tax returns. Taxpayers who have taken out loans
to pay for the cost of attending an accredited college for
themselves, a spouse, or a dependant may be eligible for this
deduction. The tax deduction is available only for interest
payments made during the first 60 months in which interest
payments are required.
The maximum deduction each taxpayer is permitted to take
will be limited initially to $1,000 but will be increased
annually by $500 increments. Check with www.irs.gov for this years' current deductions :
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Q:
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Who is eligible to take the deduction?
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A:
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The deduction is available for any borrower with a
"qualified" student loan. Taxpayers who have
obtained loans to specifcally pay for the cost of attendance
at an accredited college for themselves, their spouse,
or dependent may deduct the amount within the limits
specified above of interest paid on their educational
loan.
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Q:
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What loans qualify for the deduction?
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A:
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All Stafford, PLUS,
CitiAssist®
and Consolidation
loans and all other consumers loans which are specifically
for higher education purposes.
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Q:
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Are there any loans that aren’t eligible?
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A:
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As long as the borrower has certified their loans as
being used for educational purposes they may be eligible
for this tax deduction. You may need to file a
IRS form W-95 with your lender.
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Q:
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How long can one claim the deduction?
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A:
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The deduction can currently only be taken for interest
paid during the first 60 months of the repayment
period in which payments are required, which may be
extended based on those periods of time your loan(s)
are in grace,
on a deferment
or forbearance.
ie. You begin making payments on your loan(s) on 07/98
and on 08/99 you apply for a deferment that lasts for
12 months. The total amount of repayment time you have
used is 13 months; which makes you eligible to continue
to deduct the interest for 47 months.
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Q:
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How do I know how much interest I can deduct?
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A:
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Citibank and other lenders will send all eligible borrowers
of FFEL loans a 1098E form stating the amount of interest
paid for the year. The taxpayer is responsible to determine
how much of that amount they are eligible to deduct
on their income tax. To ensure receipt of 1098Es or
other consumer loans, borrowers should file IRS Form
W-9S with their lenders.
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Q:
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Are there any limits on who may take the student loan
interest deduction?
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A:
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Yes. There are income restrictions. To claim the maximum
deduction, a taxpayer must have modified adjusted gross
income of $55,000 or less ($75,000 for married taxpayers
filing jointly). The amount of the taxpayer's
deduction is gradually reduced for taxpayers with modified
adjusted gross income between $40,000 and $55,000 (between
$60,000 and $75,000 for married taxpayers filing jointly).
For example, for 1998, the maximum deduction a single
taxpayer with modified adjusted gross income of $47,500
could take would be $500. Taxpayers with modified adjusted
gross income above $55,000 ($75,000 for married taxpayers
filing jointly) may not claim the student loan interest
deduction. The modified adjusted gross income limitations
are indexed for inflation after 2002.
As a reminder, you should seek advice on how to get
the best use of the aforementioned benefits to a qualified
financial advisor.
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Q:
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May a parent claim the student loan interest deduction
if the parent borrows to pay his/her child's costs of
attending college?
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A:
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Yes. An individual may claim the student loan interest
deduction if the individual borrows money to pay the
costs of attending college for certain members of the
individual's family or household (including his/her
children) and incurs the debt in a year in which the
individual supplies more than half of the student's
support.
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Q:
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If a student is claimed as a dependent by their parent(s)
in a particular taxable year, may the student claim
any interest that he/she pays in that year?
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A:
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No. The student may not claim the student loan
interest deduction in any taxable year in which they
are claimed as a dependent on another taxpayer's return.
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Q:
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When does the deduction take effect?
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A:
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Interest paid on or after January 1, 1998 is eligible
to be deducted within the limits. However, taxpayers
may start claiming the deduction in 1999, when they
file their federal income tax returns for 1998.
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Q:
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Is there a limit on how long a borrower can claim the
deduction?
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A:
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Yes. A taxpayer can deduct the interest paid during
the first 60 months of a loan's repayment period. This
60-month period is extended by any periods of grace,
deferment
or forbearance.
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Q:
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Is a borrower who is already in repayment eligible
to take the interest deduction?
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A:
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Yes. A borrower may deduct the interest-portion of
any loan payments made on or after January 1, 1998,
provided that the borrower is still in the first 60
months of repayment. They must also meet the income
limitations and the amount deducted is limited as well.
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Q:
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Are CitiAssist®
Loans eligible to take the interest deduction?
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A:
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Yes. Loans taken out for educational purposes may
be eligible for the interest deduction. The borrower
must obtain a W-9S and forward it to Citibank or their
other lenders, the W-9S form certifies that these loans
were used for educational expenses. To obtain this form,
you may contact the IRS at 1-800-TAX-FORM.
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