Tax Day 2022: Will student loans help or hurt your tax bill?
Dori Zinn loves helping people learn and understand money. She’s been covering personal finance for a decade and her writing has appeared in Wirecutter, Credit Karma, Huffington Post and more.
Pallavi is an editor for CNET Money, covering topics from Gen Z to student loans. She’s a graduate of Cornell University and hails from Atlanta, Georgia. When she’s not editing, you can find her practicing bookbinding skills or running at a very low speed through the streets of Charlotte.
Repaying student loans is a massive undertaking, and one that often continues years after your graduation. They can affect your financial independence and your standard of living. One area of impact, both positive and negative, that is often overlooked are your taxes.
Student loan interest deduction
When you make monthly payments to your student loans, that includes your principal payment as well as your interest payment. Whether you have private or federal student loans, the student loan interest deduction lets you reduce your taxable income up to $2,500 a year — although you might only qualify for up to the amount you paid in interest, which might be less than $2,500.
You’re eligible for the deduction if you paid student loan interest last year and you aren’t filing as “married filing separately.” If you and your spouse are filing jointly, neither of you can be claimed as a dependent on someone else’s return.
Reducing your taxable income can help lower how much you owe the government or increase how much you’ll get as a refund. You might get placed in a lower tax bracket, which might qualify you for other deductions and credits.
American Opportunity Tax Credit
The American Opportunity Tax Credit is for first-time college students during their first four years of higher education. (más…)