Most of us know we need to pay attention to things like our mortgages when doing our taxes. But who would imagine that student loan debt could possibly help you get a bigger tax refund?
Here’s a look at how you might be able to write off some interest paid on student loans, as well as other tax tips relating to college debt. Big clue: Don’t default if you want a fat tax refund.
Despite some rumors to the contrary, many people can lower their tax bill by tapping into a deduction on federal income tax returns for interest paid in 2018 on federal and private student loans.
“It’s a nice benefit to have,” said Cari Weston, director of tax practice and ethics for the American Institute of CPAs.
But she warns that it’s a tax break that only applies to a limited group of people, often younger consumers who aren’t making much money. Married couples – who both are paying off student loans – face some unexpected limits, too.
The good news is that it’s possible to claim this deduction even if you take the standard deduction.
“It’s not an itemized deduction,” said Jackie Perlman, principal tax research analyst at H&R Block’s Tax Institute.
Under the Tax Cuts and Jobs Act of 2017, more people will take the standard deduction instead of itemizing. Even if that’s the case, you could still be able to use the deduction for student loan interest if you qualify, Perlman said.
But again, it’s one tax break that you cannot always bank on.
Weston said clients may hear about the deduction but not realize all the hurdles.
“People get very confused,” Weston said.
As a CPA, she’s had to break the bad news and tell clients things such as: “But in your case, you make too much money, and you’re not going to get it.” …..Read more>>