The U.S. tax code is designed to encourage certain purchases and activities that strengthen society. Home ownership is one of those, and so is higher education. That's why the Internal Revenue Service (IRS) lets you deduct the interest you pay on both home mortgage loans and student loans. But did you know that you can deduct the interest paid on student loans -- even if you aren't the person that's paying it? If you qualify, you can deduct up to $2,500 in student loan interest every year.
As the IRS sees it, the person who is legally obligated to pay back a student loan has the right to deduct the interest [source: TurboTax]. In most cases, that person is the student. So even if your parents are the ones writing the check each month, you can still deduct that interest on your tax return.
With the IRS being the IRS, nothing is straightforward, so there are a few conditions that could potentially disqualify you from claiming the interest deduction on your tax return:
- If you're claimed as a dependent on someone else's tax return (your parents', for example), then you cannot claim the deduction.
- If your modified adjusted gross income is greater than $80,000 for a single filer or $160,000 for a married couple filing jointly, then you can't claim student loan interest as a deduction [source: Perez].
- If the loan is a Direct PLUS loan for parents or a similar loan in which your parents are legally obligated to repay it, then you can't deduct the interest from that loan [source: TurboTax].
Now let's look at some creative deductions you can take from contributing to a good cause.