Eligibility for Student Loan Interest Deduction
To be eligible for the maximum student loan interest deduction of $2,500 for tax year 2024, your modified adjusted gross income must be under $80,000 ($165,000 if filing jointly with your spouse).
To claim the Student Loan Interest Deduction, your MAGI must be $90,000 or less for single filers and $185,000 or less for joint filers in 2023. The deduction phases out for single filers with MAGIs of $75,000 to $90,000 and joint filers with MAGIs of $155,000 to $185,000.
Up until 2020, the Tuition and Fees Deduction allowed eligible students to deduct up to $4,000 in qualified education expenses from their taxable income. This deduction was a valuable benefit for many, but unfortunately, it was repealed in 2021, leaving students and families seeking alternative options.
Reporting the amount of student loan interest you paid in 2023 on your federal tax return may count as a deduction. A deduction reduces the amount of your income that is subject to tax, which may benefit you by reducing the amount of tax you may have to pay.
You can take a tax deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent. This benefit applies to all loans (not just federal student loans) used to pay for higher education expenses. The maximum deduction is $2,500 a year.
To claim the American opportunity credit complete Form 8863 and submit it with your Form 1040 or 1040-SR. Enter the nonrefundable part of the credit on Schedule 3 (Form 1040 or 1040-SR), line 3. Enter the refundable part of the credit on Form 1040 or 1040-SR, line 29.
The standard deduction varies by filing status and is indexed for inflation. In 2024, the standard deduction is $14,600 for single filers and married persons filing separately, $21,900 for a head of household, and $29,200 for a married couple filing jointly and surviving spouses.
Cons of Claiming a College Student as a Dependent
If your child has earned income and you claim them as a dependent, they lose the opportunity to claim their own personal exemption (when applicable in future years) and certain tax credits that could be more advantageous for them.
You can claim the American opportunity tax credit (AOTC) on 100% of the first $2,000 of your child's college tuition and expenses and 25% of the next $2,000 in tuition and related expenses, up to a maximum of $2,500 per year. The eligible expenses include: Qualified tuition and fees.
Collection activities are currently paused for all federal student loans through September 2024, which should protect your 2022 and 2023 federal and state tax refunds. But you may need to take action.
Are federal student loans forgiven after 20 years? Yes, federal student loans may be forgiven after 20 years under certain circumstances. But only certain types of loans are eligible for forgiveness, and you must be enrolled in a qualifying repayment plan.
Whether you're a student or a parent, you must be responsible for and have paid the interest on the student loan during the tax year. For example, if your parents are directly repaying a student loan you took out, neither you nor your parents are eligible to claim the deduction.
You can deduct the full $2,500 if your modified adjusted gross income (AGI) is $155,000 or less. Your student loan deduction is gradually reduced if your modified AGI is more than $155,000 but less than $185,000. You can't claim a deduction if your modified AGI is $185,000 or more.
A fixed rate will not change for the life of the loan. If your loan was disbursed before July 1, 2024, you likely have a different interest rate.
2024 Federal Income Tax Brackets and Rates
The federal income tax has seven tax rates in 2024: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.
There is no age limit for how long you can claim adult children or other relatives as dependents, but they must meet other IRS requirements to continue to qualify. Additionally, once they are over 18 and no longer a student, they can only qualify as an "other dependent," not a qualifying child.
Pros and Cons of Claiming Your College Student as Dependent on Taxes. The ability to claim a college student as a dependent generally makes taxpayers eligible for more credits and deductions, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
If you have income below the standard deduction threshold for 2024, which is $14,600 for single filers and $29,200 for those married filing jointly, you may not be required to file a return. However, you may want to file anyway.
By statute, certain items that were indexed for inflation in the past are currently not adjusted. The personal exemption for tax year 2024 remains at 0, as it was for 2023. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
You should itemize deductions on Schedule A (Form 1040), Itemized Deductions if the total amount of your allowable itemized deductions is greater than your standard deduction or if you must itemize deductions because you can't use the standard deduction.
Overall, couples often get fewer benefits and might pay more in taxes when they file separately rather than jointly.
For your 2024 taxes, the American Opportunity Tax Credit: Can be claimed in amounts up to $2,500 per student, calculated as 100% of the first $2,000 in college costs and 25% of the next $2,000. May be used toward required course materials (books, supplies and equipment) as well as tuition and fees.
The amount provided in a refund is determined by the 40% rule. The amount of the credit remaining after your tax bill reaches $0 is multiplied by 40% to determine your credit. To receive the full $1,000, you must claim a credit of $2,500 and owe $0 in taxes.
You can claim a tax credit for your college tuition, or your dependent child's college tuition, either through the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC). However, you cannot claim both for the same expenses during the same tax year.