When this deduction was first created some years back the deduction was limited to interest for the first 60 months after the first payment was due. The 60-month rule was temporarily eliminated through 2012. Without further Congressional action the 60-month limit will return in 2013.

Generally, taxpayers can only deduct home mortgage interest, investment interest, and business interest. However, interest paid on student loans used to pay tuition, room and board and related expenses for qualified higher education is an above-the-line deduction.

The deduction is limited to $2,500. The deduction for student loan interest is allowed whether or not a taxpayer itemizes deductions. Qualifying loans can include government student loans, consumer loans, and loans by unrelated third parties.

The annual deduction begins to phase out when a taxpayer's modified AGI reaches the lower end of the phase out range and is completely phased out at the top of the range. The phase-out range is adjusted annually for inflation. The table below indicates the phase out ranges for each filing status. Married individuals who file separately and taxpayers who are claimed as a dependent of another are not allowed to take this deduction. The phase-outs are inflation adjusted in some years.

Filing Status 2007 2008 2009-2011
Unmarried 55,000-70,000 55,000-70,000 60,000-75,000
Married Joint 110,000-140,000 115,000-145,000 120,000-150,000
Married Separate No Deduction Allowed
Dependent No Deduction Allowed

If you overlooked this deduction in a prior year, it is not too late. We can assist you in amending your prior year's returns to take advantage of this deduction.