My friend has told me that you can deduct student loans. I told him it was just the interest that you can deduct, but he says you can deduct both. Which one is it? Can you deduct student loans?
Tell your friend that you're correct -- you can deduct only the interest. But you may be able to take a decent-sized write-off.
You can deduct up to $2,500 in student-loan interest paid in 2007 if your income for the year was $55,000 or less if single, or $110,000 or less if married filing jointly. Single people can take a partial deduction if they earned up to $70,000 for the year, or $140,000 if married filing jointly.
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You can take the deduction regardless of whether you itemize. You may even qualify to take the write-off yourself if your parents paid the interest on a loan for which you were legally liable (your parents, however, cannot claim the deduction if they weren't liable for the loan). You cannot deduct student-loan interest if you are being claimed as a dependent on your parents' tax return.
For more information about deducting student-loan interest and other education-related tax breaks, see Tax Breaks for Education. Also see IRS Publication 970, Tax Benefits for Education.
For other ways to lower your taxes, see The 13 Most Overlooked Tax Deductions and the Kiplinger Tax Center.
Families whose kids will be attending college soon -- or who are there right now -- can find help with the bills in Everything You Need to Know About College Aid.
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