COLLEGE LOANS CONSOLIDATION

Student-Loan Interest May Be Tax Deductible

The price of a college education continues to climb, but a tax break may be available that could lower the total cost. Taxpayers who meet certain requirements can deduct the interest on student loans on their federal tax returns. While parents and students should consult with their tax adviser to see if this deduction is available to them, the following list of a few of the Internal Revenue Service (IRS) rules in this area can provide a useful starting point:

• Amount of the Potential Deduction

  The maximum deductible interest on a qualified student loan is $2,500. This amount is per return, not per person, and varies depending on factors such as filing status and income.

• Filing Status

  Taxpayers who file their returns as "married filing separately" may not deduct student-loan interest. Those whose filing status is "married filing jointly," "single," "head of household," or "qualifying widow or widower" may be able to deduct the interest.

• Income Limitations

  Certain income restrictions also apply. Taxpayers with a modified adjusted gross income (MAGI) under a certain amount may deduct the full $2,500 of student-loan interest. The deduction is gradually reduced as MAGI rises, and no deduction is available for MAGI over a certain limit. The MAGI limits vary depending on filing status. For a definition of MAGI, contact the IRS or your tax adviser. They can also provide information on the MAGI limits used to determine the deductible of student-loan interest.

• Parent's Loan vs. Child's Loan

  Children who no longer are dependents and take out student loans in their own name may be able to deduct the interest. If the loan is a taken out in a parent's name for a child's education, the interest on that loan may be deducted by the parent as long as the child was the parent's dependent when the loan was received. If both the parent and the child receive loans to finance the education, the determination of who gets the deduction depends on whether the child was a dependent. In this case, if the child was not the parent's dependent when the loans were taken out, the parent may not deduct the interest, although the child can take the deduction; if the child was a dependent, the parent can deduct the interest.

Other restrictions may apply to the deductible of student-loan interest at the federal level, and state tax laws vary. So again, make sure to check with your tax adviser before deducting student-loan interest on your return.