Deducting Student Loan Interest Code Section 221 – Paul Gaulkin CPA

paper saying student loans in redInterest payments made on student loans are deductible for adjusted gross income or “above the line”. This means that a taxpayer can deduct the interest whether or not he or she has chosen to itemize deductions for the tax year. For 2012, eligible taxpayers may deduct up to $2,500 of interest expense on a qualified education loan under Code Section 221.

Deduction Phase Out

The deduction begins to phase out for single taxpayer with adjusted gross income between $60,000 and $75,000 and for joint filers with adjusted gross income between $120,000 and $150,000. Married taxpayers filing separately may not take the deduction according to the IRS.


Individuals that can be claimed as a dependent by another taxpayer for the tax year beginning in the calendar year in which the individual’s tax year begins are not eligible for the deduction.


In 2012, Jacob paid $1,800 of interest on a qualified education loan. His modified adjusted gross income was $66,000. Jacob is single, which means his deduction for qualified student loan interest is phased out by the ratio of his excess adjusted gross income divided by $15,000 ($6,000/$15,000). This means that the deduction is reduced by 40% ($6,000/$15,000). This means that Jacob will have a total deduction of $1,080 (60% times $1,800).

To be eligible for the deduction, the educational loan must be used to pay for:

1. Tuition
2. Fees
3. Room and board
4. Books and supplies
5. Other related expenses

If one of your items does not fall under these categories, it would be best to as a professional for assistance on determine whether your expense qualifies.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.

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