SL interest tax deductible - am I really losing that much?

**auron** · 10-09-2012, 04:18 PM

Paid student loan interest is separate from the standard deduction. You may deduct a maximum of $2,500 of paid student loan interest per year. Assuming a 25% tax bracket, you would save $375 in taxes after having paid $1,500 in SL interest ($1500 * 0.25 = $375).

By all means though, check my work and understand the IRS rules.

Publication 17 (2011), Your Federal Income Tax

**Nika** · 10-10-2012, 09:42 AM

Deductions are often very over-estimated.

When we did actual calculations, I only save $6 a year on taxes from paying interest on my student loan

it is not as straight as you would think - amount of interest multiplied by tax bracket. The higher your income is the less you get to deduct.

So, for example if we contribute $5000 into baby's 529 plan we will only get to save $242. Almost makes one not sure it is worth it -- it is much less restrictive to save in a taxable account.

**auron** · 10-10-2012, 09:48 AM

My above numbers are not overestimating. At $54K/yr the OP is below the deduction phase out limit of $60K/yr MAGI. If you were above a MAGI of $60k/yr, then yes there is more to it but this is not the OP's case.

From the 2011 Tax Code:

"However, the amount determined above is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($120,000 and $150,000 if you file a joint return). You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($150,000 or more if you file a joint return). For details on figuring your MAGI, see chapter 4 of Publication 970"

**Nika** · 10-10-2012, 09:53 AM

Auron, I did not say that you overestimated it.

I said that sometimes people do (like us).

SL interest tax deductible - am I really losing that much?