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Student Loan Interest and Tax Form 1098-E

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Are you aware of the Tax Form 1098-E for Student Loan Interest? For individuals currently repaying a student loan, Tax Form 1098-E may be mailed out from each lender. This document displays the amount of interest paid for the year. Taking advantage of tax deductions on federal tax returns is possible with this tax form, but more is needed to guarantee qualification to do so.

How can Tax Form 1098-E help you?

The Tax Form 1098-E will be sent to you by lenders when you have made payments of $600 or more in student loan interest during the year. This amount is taken from all loans a borrower has with the same lender, though it can be broken down into each separate loan. The sum shown in box 1 of Tax Form 1098-E shows a person’s total interest payments for that tax year.

How Can You Get Tax Deduction from Student Loan Interest?

Knowing the right moment to tax deduct student loan interest is important. This particular tax deduction can be taken as an adjustment while working out your adjusted gross income, otherwise known as AGI. It’s worth noting that you are not expected to itemize your tax deductions for this option to be available.

In order for your student loan interest payments made during the year to be tax deductible, they must have been taken out by you, your dependents or your spouse in order for them to take classes. When filing taxes separately or as a single filer with an adjusted gross income over $85,000 for 2022, or $175,000 when married and filing jointly, it is impossible to claim any student loan interest deduction. Modified adjusted gross income (MAGI) takes the AGI figure and returns certain tax deductions.

Preparing and filing your taxes doesn’t have to leave you exhausted. PriorTax takes the heavy lifting out of any calculations; all you need to do is answer some simple questions and leave the rest up to us, quick and easy. Our free and dedicated PriorTax Tax Professional will take care of putting all your answers onto the relevant tax forms.

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How Much of Student Loan Interest is Tax Deductible?

What is the tax deduction for interest expenses? No matter the total sum paid in interest, you are eligible to deduct up to a maximum of $2,500. Those benefitting from this tax break should report the deductible amount on Schedule 1 as an alteration to their taxable income. Tax Form 1098-E provides a comprehensive breakdown of the reported amounts. However, it is still possible to include further student loan interest payments, which were not featured on the form. These additional payments must have been made towards a qualified loan for them to be eligible for tax deduction.

Checking the Box 2 from Tax Form 1098-E

If Box 2 of the Tax Form 1098-E is ticked, it indicates the quantity mentioned in Box 1 does not include the loan’s initiation fees and/or any capitalized interest. Nevertheless, this should apply to loans obtained before September 1st, 2004.

When you take out a loan, the lender may charge you a fee known as the origination fee. This amount is usually determined as a percentage of your loan and is factored into the total funds disbursed. Additionally, you can include a portion of this fee in your tax deductions for student loan interest. By dividing the origination fee by the years it takes to pay off the loan, one can determine how much they can claim every year when filing their taxes.

When it comes to unpaid interest, should the lender opt to add it onto the principal loan balance (capitalization), the deductible portion of that amount must be figured out similarly to when dealing with an origination fee.

Ensure your taxes are done correctly with the help of a Dedicated PriorTax Professional. Give us a call at 877-289-7580 during our regular office hours to get one of our specialized tax professionals on your side. Alternatively, you can take only 10 minutes to answer simple questions and be guided through the process of filing your taxes confidently using PriorTax. Whichever way suits you best, we guarantee that you will receive the maximum refund possible.


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