What is this Form 1098-E I received? *or* What You Should Know About Student Loan Interest
February 5, 2013
While I was helping my son gather information so he could file his tax return, he mentioned, “Oh, I got this other form, this 1098. Does it mean anything?”
Are you a recent college graduate, or paying interest on your college loans while still in school? Good news! The interest you pay on your loans is deductible from your taxable income, and you don’t need to have a complicated tax return in order to do so. Even if you file a form as simple as a 1040EZ, you can deduct this interest, although if you do, you will have to file form 1040A instead of the simpler EZ form.
If you paid over $600 in interest, you should have received a form 1098-E from the loan servicing company. For amounts less than $600, they don’t have to send the form, but the interest is still deductible, and you’ll have to gather the information yourself. Often, they will make this information available on their websites. Go to the loan website and check your messages; you may see a notice that the 1098-E is now available. Click the link in the message, and you’ll be taken to the page with the information you need for your tax return. If you can’t access the information via the web, phone the loan company and get the information that way.
Sometimes, if you don’t make a payment of interest, the loan servicing company will add that amount to your total loan balance, and call it “capitalized interest”. While those capitalized interest amounts will not show up on Form 1098-E, they can be deducted as student loan interest, IF you made payments on your loans during the year that equaled the total student capitalized loan interest amount.
Student loan interest is entered on line 18 of Form 1040A, or on line 33 of Form 1040. The limit on deductible interest is $2,500, and there are other limits based on your gross income and filing status. For instance, if you file your return as married filing separately, or if you are claimed as a dependent on another’s return, you cannot take the deduction.
Full details on this are in Publication 970, Tax Benefits for Education, available from the IRShere. There are examples there of how to calculate the deductible amount, as well as full information on who is and who is not eligible to take the deduction. So don’t ignore this legitimate deduction from your taxable income!