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2010 tax Publication 516 - Introductory Material Table of Contents Future Developments What's New Reminders IntroductionOrdering forms and publications. 2010 tax Tax questions. 2010 tax Useful Items - You may want to see: Future Developments For the latest information about developments related to Publication 516, such as treaties effective after it was published, go to www. 2010 tax irs. 2010 tax gov/pub516. 2010 tax What's New U. 2010 tax S. 2010 tax tax treaties and foreign tax laws. 2010 tax This publication has been expanded to cover U. 2010 tax S. 2010 tax tax treaties and compliance with foreign tax laws. 2010 tax Reminders Combat zone participants. 2010 tax If you were a civilian who served in a combat zone or qualified hazardous duty area in support of the U. 2010 tax S. 2010 tax Armed Forces, you can get certain extensions of deadlines for filing tax returns, paying taxes, filing claims for refund, and doing certain other tax-related acts. 2010 tax For details, see Publication 3, Armed Forces' Tax Guide. 2010 tax Death due to terrorist or military action. 2010 tax U. 2010 tax S. 2010 tax income taxes are forgiven for a U. 2010 tax S. 2010 tax Government civilian employee who dies as a result of wounds or injuries incurred while employed by the U. 2010 tax S. 2010 tax Government. 2010 tax The wounds or injuries must have been caused by terrorist or military action directed against the United States or its allies. 2010 tax The taxes are forgiven for the deceased employee's tax years beginning with the year immediately before the year in which the wounds or injury occurred and ending with the year of death. 2010 tax If the deceased government employee and the employee's spouse filed a joint return, only the decedent's part of the joint tax liability is forgiven. 2010 tax For additional details, see Publication 559, Survivors, Executors, and Administrators. 2010 tax Form 8938. 2010 tax If you had foreign financial assets in 2012, you may have to file Form 8938 with your return. 2010 tax See Foreign Bank Accounts, later. 2010 tax Introduction If you are a U. 2010 tax S. 2010 tax citizen working for the U. 2010 tax S. 2010 tax Government, including the foreign service, and you are stationed abroad, your income tax filing requirements are generally the same as those for citizens and residents living in the United States. 2010 tax You are taxed on your worldwide income, even though you live and work abroad. 2010 tax However, you may receive certain allowances and have certain expenses that you generally do not have while living in the United States. 2010 tax This publication explains: Many of the allowances, reimbursements, and property sales you are likely to have, and whether you must report them as income on your tax return, and Many of the expenses you are likely to have, such as moving expenses and foreign taxes, and whether you can deduct them on your tax return. 2010 tax U. 2010 tax S. 2010 tax possessions. 2010 tax This publication does not cover the rules that apply if you are stationed in American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, the Virgin Islands, or Puerto Rico. 2010 tax That information is in Publication 570, Tax Guide for Individuals With Income From U. 2010 tax S. 2010 tax Possessions. 2010 tax Comments and suggestions. 2010 tax We welcome your comments about this publication and your suggestions for future editions. 2010 tax You can write to us at the following address: Internal Revenue Service Business Forms and Publications Branch SE:W:CAR:MP:T:B 1111 Constitution Ave. 2010 tax NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. 2010 tax Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2010 tax You can email us at taxforms@irs. 2010 tax gov. 2010 tax Please put “Publications Comment” on the subject line. 2010 tax You can also send us comments from www. 2010 tax irs. 2010 tax gov/formspubs/. 2010 tax Select “Comment on Tax Forms and Publications” under “Information about. 2010 tax ” Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2010 tax Ordering forms and publications. 2010 tax Visit www. 2010 tax irs. 2010 tax gov/formspubs/ to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received. 2010 tax Internal Revenue Service 1201 N. 2010 tax Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2010 tax If you have a tax question, check the information available on IRS. 2010 tax gov or call 1-800-829-1040. 2010 tax We cannot answer tax questions sent to either of the above addresses. 2010 tax Useful Items - 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The 2010 Tax
2010 tax 4. 2010 tax Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. 2010 tax However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. 2010 tax For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. 2010 tax This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. 2010 tax The student loan interest deduction is taken as an adjustment to income. 2010 tax This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). 2010 tax This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. 2010 tax Table 4-1. 2010 tax Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. 2010 tax Do not rely on this table alone. 2010 tax Refer to the text for complete details. 2010 tax Feature Description Maximum benefit You can reduce your income subject to tax by up to $2,500. 2010 tax Loan qualifications Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. 2010 tax Student qualifications The student must be: •you, your spouse, or your dependent, and •enrolled at least half-time in a degree program. 2010 tax Time limit on deduction You can deduct interest paid during the remaining period of your student loan. 2010 tax Limit on modified adjusted gross income (MAGI) $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). 2010 tax Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. 2010 tax It includes both required and voluntary interest payments. 2010 tax Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. 2010 tax Loans from the following sources are not qualified student loans. 2010 tax A related person. 2010 tax A qualified employer plan. 2010 tax Your dependent. 2010 tax Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. 2010 tax You can find more information about dependents in Publication 501. 2010 tax Exceptions. 2010 tax For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. 2010 tax An individual can be your dependent even if you are the dependent of another taxpayer. 2010 tax An individual can be your dependent even if the individual files a joint return with a spouse. 2010 tax An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). 2010 tax Reasonable period of time. 2010 tax Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. 2010 tax Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. 2010 tax The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. 2010 tax If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. 2010 tax Academic period. 2010 tax An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 2010 tax In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 2010 tax Eligible student. 2010 tax This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. 2010 tax Enrolled at least half-time. 2010 tax A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. 2010 tax The standard for what is half of the normal full-time work load is determined by each eligible educational institution. 2010 tax However, the standard may not be lower than any of those established by the U. 2010 tax S. 2010 tax Department of Education under the Higher Education Act of 1965. 2010 tax Related person. 2010 tax You cannot deduct interest on a loan you get from a related person. 2010 tax Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. 2010 tax ), Your lineal descendants (children, grandchildren, etc. 2010 tax ), and Certain corporations, partnerships, trusts, and exempt organizations. 2010 tax Qualified employer plan. 2010 tax You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. 2010 tax Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. 2010 tax They include amounts paid for the following items. 2010 tax Tuition and fees. 2010 tax Room and board. 2010 tax Books, supplies, and equipment. 2010 tax Other necessary expenses (such as transportation). 2010 tax The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. 2010 tax Eligible educational institution. 2010 tax An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. 2010 tax S. 2010 tax Department of Education. 2010 tax It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 2010 tax Certain educational institutions located outside the United States also participate in the U. 2010 tax S. 2010 tax Department of Education's Federal Student Aid (FSA) programs. 2010 tax For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. 2010 tax An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. 2010 tax The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. 2010 tax The educational institution should be able to tell you if it is an eligible educational institution. 2010 tax Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. 2010 tax Employer-provided educational assistance. 2010 tax See chapter 11, Employer-Provided Educational Assistance . 2010 tax Tax-free distribution of earnings from a Coverdell education savings account (ESA). 2010 tax See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. 2010 tax Tax-free distribution of earnings from a qualified tuition program (QTP). 2010 tax See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. 2010 tax U. 2010 tax S. 2010 tax savings bond interest that you exclude from income because it is used to pay qualified education expenses. 2010 tax See chapter 10, Education Savings Bond Program . 2010 tax The tax-free part of scholarships and fellowships. 2010 tax See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 2010 tax Veterans' educational assistance. 2010 tax See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 2010 tax Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 2010 tax Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. 2010 tax Loan origination fee. 2010 tax In general, this is a one-time fee charged by the lender when a loan is made. 2010 tax To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. 2010 tax A loan origination fee treated as interest accrues over the term of the loan. 2010 tax Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. 2010 tax If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. 2010 tax The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. 2010 tax A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. 2010 tax Example. 2010 tax In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. 2010 tax The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. 2010 tax Bill began making payments on his student loan in 2013. 2010 tax Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. 2010 tax Bill's loan is payable in 120 equal monthly payments. 2010 tax He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). 2010 tax Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. 2010 tax To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. 2010 tax Capitalized interest. 2010 tax This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. 2010 tax Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. 2010 tax No deduction for capitalized interest is allowed in a year in which no loan payments were made. 2010 tax Interest on revolving lines of credit. 2010 tax This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. 2010 tax See Qualified Education Expenses , earlier. 2010 tax Interest on refinanced student loans. 2010 tax This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. 2010 tax If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. 2010 tax Voluntary interest payments. 2010 tax These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. 2010 tax Example. 2010 tax The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. 2010 tax He began making payments as required. 2010 tax In September 2013, Roger enrolled in graduate school on a full-time basis. 2010 tax He applied for and was granted deferment of his loan payments while in graduate school. 2010 tax Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. 2010 tax Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. 2010 tax Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. 2010 tax To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. 2010 tax Example. 2010 tax In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. 2010 tax The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. 2010 tax The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. 2010 tax At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. 2010 tax The loan is payable over 60 months, with a payment of $200. 2010 tax 51 due on the first of each month, beginning November 2013. 2010 tax Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. 2010 tax However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). 2010 tax Payment Date Payment Stated Interest Principal November 2013 $200. 2010 tax 51 $44. 2010 tax 27 $156. 2010 tax 24 December 2013 $200. 2010 tax 51 $43. 2010 tax 62 $156. 2010 tax 89 Totals $401. 2010 tax 02 $87. 2010 tax 89 $313. 2010 tax 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. 2010 tax 89. 2010 tax Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). 2010 tax A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. 2010 tax Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. 2010 tax Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. 2010 tax 02 ($87. 2010 tax 89 + $10 + $303. 2010 tax 13). 2010 tax For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. 2010 tax She also will apply the remaining amount of capitalized interest ($625 − $303. 2010 tax 13 = $321. 2010 tax 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. 2010 tax Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. 2010 tax Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. 2010 tax Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. 2010 tax Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. 2010 tax For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. 2010 tax When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. 2010 tax Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. 2010 tax Your filing status is any filing status except married filing separately. 2010 tax No one else is claiming an exemption for you on his or her tax return. 2010 tax You are legally obligated to pay interest on a qualified student loan. 2010 tax You paid interest on a qualified student loan. 2010 tax Claiming an exemption for you. 2010 tax Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. 2010 tax Example 1. 2010 tax During 2013, Josh paid $600 interest on his qualified student loan. 2010 tax Only he is legally obligated to make the payments. 2010 tax No one claimed an exemption for Josh for 2013. 2010 tax Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. 2010 tax Example 2. 2010 tax During 2013, Jo paid $1,100 interest on her qualified student loan. 2010 tax Only she is legally obligated to make the payments. 2010 tax Jo's parents claimed an exemption for her on their 2013 tax return. 2010 tax In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. 2010 tax Interest paid by others. 2010 tax If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. 2010 tax Example 1. 2010 tax Darla obtained a qualified student loan to attend college. 2010 tax After Darla's graduation from college, she worked as an intern for a nonprofit organization. 2010 tax As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. 2010 tax This payment was treated as additional compensation and reported in box 1 of her Form W-2. 2010 tax Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. 2010 tax Example 2. 2010 tax Ethan obtained a qualified student loan to attend college. 2010 tax After graduating from college, the first monthly payment on his loan was due in December. 2010 tax As a gift, Ethan's mother made this payment for him. 2010 tax No one is claiming a dependency exemption for Ethan on his or her tax return. 2010 tax Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. 2010 tax No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). 2010 tax Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. 2010 tax However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. 2010 tax You can use Worksheet 4-1. 2010 tax Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. 2010 tax Form 1098-E. 2010 tax To help you figure your student loan interest deduction, you should receive Form 1098-E. 2010 tax Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. 2010 tax For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. 2010 tax Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. 2010 tax However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. 2010 tax See Allocating Payments Between Interest and Principal , earlier. 2010 tax The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. 2010 tax The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. 2010 tax Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). 2010 tax You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). 2010 tax Modified adjusted gross income (MAGI). 2010 tax For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. 2010 tax However, as discussed below, there may be other modifications. 2010 tax Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. 2010 tax Table 4-2. 2010 tax Effect of MAGI on Student Loan Interest Deduction IF your filing status is. 2010 tax . 2010 tax . 2010 tax AND your MAGI is. 2010 tax . 2010 tax . 2010 tax THEN your student loan interest deduction is. 2010 tax . 2010 tax . 2010 tax single, head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. 2010 tax more than $60,000 but less than $75,000 reduced because of the phaseout. 2010 tax $75,000 or more eliminated by the phaseout. 2010 tax married filing joint return not more than $125,000 not affected by the phaseout. 2010 tax more than $125,000 but less than $155,000 reduced because of the phaseout. 2010 tax $155,000 or more eliminated by the phaseout. 2010 tax MAGI when using Form 1040A. 2010 tax If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). 2010 tax MAGI when using Form 1040. 2010 tax If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 2010 tax MAGI when using Form 1040NR. 2010 tax If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). 2010 tax MAGI when using Form 1040NR-EZ. 2010 tax If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). 2010 tax Phaseout. 2010 tax If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. 2010 tax To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. 2010 tax The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). 2010 tax The denominator is $15,000 ($30,000 in the case of a joint return). 2010 tax Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. 2010 tax Example 1. 2010 tax During 2013 you paid $800 interest on a qualified student loan. 2010 tax Your 2013 MAGI is $145,000 and you are filing a joint return. 2010 tax You must reduce your deduction by $533, figured as follows. 2010 tax $800 × $145,000 − $125,000 $30,000 = $533 Your reduced student loan interest deduction is $267 ($800 − $533). 2010 tax Example 2. 2010 tax The facts are the same as in Example 1 except that you paid $2,750 interest. 2010 tax Your maximum deduction for 2013 is $2,500. 2010 tax You must reduce your maximum deduction by $1,667, figured as follows. 2010 tax $2,500 × $145,000 − $125,000 $30,000 = $1,667 In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). 2010 tax Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. 2010 tax However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. 2010 tax Student Loan Interest Deduction Worksheet at the end of this chapter. 2010 tax Claiming the Deduction The student loan interest deduction is an adjustment to income. 2010 tax To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). 2010 tax Worksheet 4-1. 2010 tax Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. 2010 tax Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. 2010 tax 1. 2010 tax Enter the total interest you paid in 2013 on qualified student loans. 2010 tax Do not enter more than $2,500 1. 2010 tax 2. 2010 tax Enter the amount from Form 1040, line 22 2. 2010 tax 3. 2010 tax Enter the total of the amounts from Form 1040, lines 23 through 32 3. 2010 tax 4. 2010 tax Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. 2010 tax 5. 2010 tax Add lines 3 and 4 5. 2010 tax 6. 2010 tax Subtract line 5 from line 2 6. 2010 tax 7. 2010 tax Enter any foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. 2010 tax 8. 2010 tax Enter any foreign housing deduction (Form 2555, line 50) 8. 2010 tax 9. 2010 tax Enter the amount of income from Puerto Rico you are excluding 9. 2010 tax 10. 2010 tax Enter the amount of income from American Samoa you are excluding (Form 4563, line 15) 10. 2010 tax 11. 2010 tax Add lines 6 through 10. 2010 tax This is your modified adjusted gross income 11. 2010 tax 12. 2010 tax Enter the amount shown below for your filing status 12. 2010 tax •Single, head of household, or qualifying widow(er)—$60,000 •Married filing jointly—$125,000 13. 2010 tax Is the amount on line 11 more than the amount on line 12? □ No. 2010 tax Skip lines 13 and 14, enter -0- on line 15, and go to line 16. 2010 tax □ Yes. 2010 tax Subtract line 12 from line 11 13. 2010 tax 14. 2010 tax Divide line 13 by $15,000 ($30,000 if married filing jointly). 2010 tax Enter the result as a decimal (rounded to at least three places). 2010 tax If the result is 1. 2010 tax 000 or more, enter 1. 2010 tax 000 14. 2010 tax . 2010 tax 15. 2010 tax Multiply line 1 by line 14 15. 2010 tax 16. 2010 tax Student loan interest deduction. 2010 tax Subtract line 15 from line 1. 2010 tax Enter the result here and on Form 1040, line 33. 2010 tax Do not include this amount in figuring any other deduction on your return (such as on Schedule A, C, E, etc. 2010 tax ) 16. 2010 tax Prev Up Next Home More Online Publications