With education costs continuing to rise, many graduates have student loans to pay off after they graduate, including Sallie Mae student loans. Though it won’t put you in as good a financial position as you would have been in without the loan in the first place, the student loan interest deduction can help put a few more dollars in your bank account when you file your taxes. But, before you file, make sure you get the appropriate student loan tax form.
Sallie Mae educational loans can qualify for the student loan interest tax deduction.
Qualified Education Expenses
You can only include qualified education expenses under a Sallie Mae loan. Tuition and fees top the IRS list of qualified education expenses. Course-related expenses that are also allowed include books, supplies and equipment that are required for a course of study.
Non-qualified expenses include room and board, travel, research, clerical help and equipment or expenses that are not required for your enrollment or attendance at an eligible educational institution.
Sallie Mae Tax Docs
If you have a student loan with Sallie Mae and you pay more than $600 in student loan interest, you will receive a Sallie Mae 1098-E form that documents how much student loan interest you paid during the year. To qualify as a student loan, the loan must be taken out to pay for only qualified higher education expenses for yourself, your spouse or your dependent.
The student loan interest deduction is an adjustment to income, even if you don’t itemize your deductions. However, you are limited to deducting only the first $2,500 of student loan interest each year, and you can’t carry forward any excess interest paid. For example, if you paid $3,100 in student loan interest during the year, you can only deduct $2,500, and the extra $600 is lost.
Enter the amount of your qualifying loan interest deduction on Line 33 (student loan interest deduction) of IRS Schedule 1. When you complete the rest of Schedule 1, you'll be prompted to subtract the amount on Line 36 (which includes the amount you entered on Line 33) from Line 6 of your 1040 form to claim your interest deduction.
No Changes for 2018
The Tax Cuts and Jobs Act of 2017 didn’t make any changes to the student loan interest deduction. Initial tax bill proposals had included provisions that would have eliminated the deduction entirely. However, these were not made part of the final law that passed, so the deduction is still available. The same income limits apply as were in place during the 2017 tax year.
Annual Income Limits
If your modified adjusted gross income is too high, your maximum deduction could be reduced, or you could lose the deduction entirely. The limits depend on your tax filing status. However, you can’t claim the deduction at all if you file your taxes using the married filing separately status.
When you file your 2018 or 2019 income tax return, you can’t claim any deduction for your student loan interest if you’re single and your modified adjusted gross income exceeds $80,000 or if you’re married filing jointly and your modified adjusted gross income exceeds $165,000. If you’re single and your modified adjusted gross income falls between $65,000 and $80,000, or if you’re married filing jointly and your modified adjusted gross income falls between $135,000 and $165,000, the maximum deduction is reduced.
- IRS: Publication 970, Tax Benefits for Education (2018)
- IRS: Topic Number 456 - Student Loan Interest Deduction
- Legal Information Institute: 26 USC 221
- Forbes: New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
- Reuters: Column: Student Tax Breaks Survive the Tax Bill, Make the Most of Them
- IRS: Form 1098-E Instructions
- Sallie Mae: Get Student Loan Tax Benefits and Forms
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."