For the student loan deduction, if you meet requirements, you can deduct up to $2,500 in interest per tax return, not person [source: The College Board]. The loan must be for higher education costs, such as tuition and fees, supplies and lodging. The student must be enrolled at least half time in a program that meets the U.S. Department of Education's guidelines and leads to a degree, certificate or credit. Note the following:
- Duration - Interest can be deducted annually as long as the loan is for education and not being deducted in another manner.
- Filing status and income - Your filing status must be married filing jointly, head of household, single or qualifying widow or widower -- not married, filing separately. The deduction amount depends on modified adjusted gross income, which must be less than $70,000 on single returns and less than $145,000 on joint returns [source: IRS.gov].
- Deduction recipient - If the student is a dependent, the parent takes the deduction; if the student is not a dependent, he or she takes the deduction.
Next up is the deduction for up to $4,000 on higher education costs, such as tuition and fees, but not room and board. To qualify, your modified adjusted gross income must be at or less than $65,000 on single returns or $130,000 on joint returns. However, if your modified adjusted gross income is at or less than $80,000 single/$160,000 joint, you may still qualify for a maximum $2,000 deduction [source: USA Funds]. Keep in mind you cannot claim this deduction for the same student in a single calendar year if you are already taking one of the credits outlined on the previous page. Parents can qualify for this deduction if their student child is listed as a dependent on their tax returns.
Lastly, you can potentially exclude up to $5,250 annually in assistance your employer provides for higher education costs, such as tuition, fees and supplies [source: USA Funds]. When your employer calculates your final compensation for the year for tax purposes, it would not include that amount and you do not need to claim it as income. This tax-free money cannot be used in combination with other education deductions or credits.
You may be all set with your taxes, but you can also save money on your college debt by investing in the future. Click on over to the next section to learn more.