 Income Tax 2021-2022 Student Loan Interest Deduction. Get ready to get refunds to the max, diving into Income Tax 2021-2022. Most of this information can be found in the Form 1040 Tax Year 2021 Instructions found on the IRS website, irs.gov, irs.gov, looking at the Income Tax formula. Second line, the Adjustments to Income, which you might hear called the above the line deductions. The Schedule 1 deductions. The deductions for adjusted gross income, keeping them distinct in our mind from the other categories of deductions down here. Standard and itemized deductions. Page 1 of the Form 1040 here, we're focused on line number 10. Adjustments to Income from Schedule 1, line 26. This is Schedule 1, part number 2. We're focused here on line 21. The Student Loan Interest Deduction. The total of Part 2 Schedule 1 flowing into, as we saw, Page 1 of the Form 1040, line number 10. We're looking here at the Student Loan Interest Deduction. In terms of actual tax preparation, this is a pretty straightforward thing, because you're usually going to get documentation for it. So you can basically plug it into the system fairly quickly and easily. You're typically going to want tax software can be helpful, however, with the limitations. So there could be limitations with regards to income phaseout limitations, income going above a certain threshold, possibly losing the deduction after that point in time. And then you get more complex planning types of questions, which are much more difficult to answer, things like, well, should I take on more student loan debt at this point in time if I get this future deduction at a future point in time? And generally, I wouldn't think that the capacity to take the deduction in and of itself should be the deciding factor to take on the debt, because we don't really know what's going to happen with regards to legislation. It could go either way. Also note at this point in time that you're only being able to deduct the interest portion of the student loan that's being repaid. So it's not like you take out the loan and then when you pay it back, you get to deduct the whole amount of the loan. Now, it's just the interest portion. Now, going forward, there's been talk about basically eliminating the student loan debt and so on and so forth. If that was to happen, and you took out a bunch of debt, then of course, that would be a beneficial thing to you. But I would think that that's a bit extreme of something to happen. And of course, the pendulum could swing the other way in the future in terms of just policy and have them remove the deduction completely, which I would think that would be unlikely to happen as well. But you don't know what's going to happen in the future. So just entering the student loan debt once it has happened, and this is at the point in time that someone has been done with their education typically and they're paying back their student loans pretty straightforward with the data input in terms of planning on should someone take out student loans, that takes in a lot more factors than I think is just the tax code isn't the driving factor, I would think. But in any case, student loan interest deduction, you can take this deduction only if all the following apply. You paid interest in 2021 on qualified student loan, so it's got to be a qualified student loan here. Typically, you'll get documentation on that, so it's usually fairly straightforward, but there could be great areas. Your filing status is any status except married filing separately. So remember when you're married, if you decide to file married filing separate instead of joint, the IRS is skeptical about some of these kind of deductions because you can imagine the situation where you have high earners possibly filing married filing separate so they can divide their income and be able to take some of these deductions that have these income phaseouts and the government is, so that's why they limit a lot of these deductions because they feel like that would be kind of taking advantage of the system to be able to take the deductions even though your joint income is higher than the phaseout level, so that often happens. Your modified adjusted gross income AGI is less than $85,000 if single head of household or qualified widow were, so there's that income cap that it starts to go away after that point in time. And then $170,000 if married filing jointly use lines two through four of the worksheet in this instructions to figure your modified adjusted gross income. Note whenever we do these phaseouts it starts out with the AGI and then sometimes they modify it and the reason they got to modify it in this case for example is because the student loan interest is one of the things that is deducted to get to the AGI the adjusted gross income so that doesn't make any sense it's like a circle kind of problem so I believe one of the modifications here is that you're going to add back you're not going to take into consideration this particular deduction to see the phaseout that's related to this particular deduction. So the general thing you keep in mind is that you're talking about the AGI is what's usually used for the phaseout calculations for deductions and credits when there's an income phaseout. You or your spouses filing jointly aren't claimed as a dependent on someone else's such as your parents 2021 return so you're not claimed as a dependent. Student loan interest deduction don't include any amount paid from a distribution of earning made from a qualified tuition program a QTP after 2018 to the extent the earnings are treated as tax free because they were used to pay student loan interest use the worksheet in these instructions to figure your student loan interest deduction. Exception use publication 970 you can find that on the IRS website instead of the worksheet and these instructions to figure your student loan interest deduction if you file form 2555 or 4563 or you exclude income from sources within Puerto Rico qualified student loan a qualified student loan so now what is a qualified student loan right you can imagine a lot of gray area in terms of okay this is a student loan that I got from you know Uncle Joe or something like that right so what is this qualified student loan a qualified student loan is any loan who took you took out to pay the qualified higher education expense for any of the following individuals who were eligible students one yourself or your spouse to any person who was your dependent when the loan was taken out three any person you could have claimed as a dependent for the year the loan was taken out except that so obviously when you took out the loan if it was for you that's fairly straightforward if it was for any person who was your was your dependent when the loan was taken out then again that would apply fairly straightforward and then you have the somewhat gray area on three any person you could have claimed as a dependent for the year the loan was taken out except for these things a the person file the joint return be the person had gross income that was equal to or more than the exception amount for that year or four thousand three hundred and see you or your spouse is filing jointly could be claimed as a dependent on someone else's return qualified student loan however a loan isn't a qualified student loan if a any of the proceeds were used for other purposes so it's a student loan because you're using the proceeds of the loan the money you got for school you know if you used it for some if you bought a fancy car then you know you that they're not trying to subsidize the fancy car so maybe if it was a Tesla and it was energy and I don't know then maybe they'd be but in case no be the loan was from either a related person or a person who borrowed the proceeds under a qualified employer plan or a contract purchased under such a plan for details you could see publication nine seventy there qualified higher education expenses so what are higher education expenses if you take out the loan you gotta spend it on like school that's what the thing that's what they're trying to incentivize here so what is that is that just tuition is there other stuff we can put in there so qualified higher education expenses generally include tuition fees room and board and related expenses such as books and supplies so note you've got a little bit little bit more leave room than just basically tuition that they have in there the expenses must be for education in a degree certificate or similar program at the eligible educational institution and eligible educational institution includes most colleges universities and certain vocational schools for details you can see publication nine seventy found on the IRS website IRS IRS dot GOV dot go