Student Loan Interest Deduction

You may be able to deduct interest you pay on a qualified student loan. Generally, the amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid.

The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

You can claim the deduction if all of the following apply:

• You paid interest on a qualified student loan in tax year 2010
• You are legally obligated to pay interest on a qualified student loan
• Your filing status is not married filing separately
• Your modified adjusted gross income is less than a specified amount which is set annually, and
• You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's return

A qualified student loan is a loan you took out solely to pay qualified higher education expenses. See Publication 970, Tax Benefits for Education, and the instructions for Form 1040 to determine if your expenses qualify.

If you file a Form 2555, Form 2555EZ or Form 4563, or if you exclude income from sources inside Puerto Rico, refer to Publication 970 instead of the worksheet in the Form 1040 Instructions.

If you paid $600 or more of interest on a qualified student loan during the year, you will receive a Form 1098-E, Student Loan Interest Statement, from the entity to which you paid the student loan interest.

For further information about this deduction, including how to determine when the deduction is phased out, please refer to Publication 970, Tax Benefits for Education.