Does filing separately from your spouse mean forfeiting your student loan deduction?
Yes, if you are married, you must file your taxes together to get this deduction.
Nathan Rigney- The Tax Institute at H&R Block
Susan Allen- Senior Manager for Tax Practice and Ethics- American Institute of CPAs
Internal Revenue Service Tax Guide 2018
Tax Day is upon us and some of you are squeezing those last few hours for W-2 advice.
A viewer asked us to Verify whether it’s true that filing taxes separately from your spouse means forfeiting that student loan paid interest deduction.
Turns out it's 100% true, according to the IRS's 2018 Tax Guide.
Under "Special Rules" for "Married Filing Separately" it reads:
"If you choose married filing separately as your filing status, the following special rules apply. Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for.....you can't take the education credits (the American opportunity credit and lifetime learning credit), or the deduction for student loan interest."
We cross-checked with experts at H&R Block and the American Institute of CPAs.
"This is one of those tax benefits that isn't allowed on married filing separate returns," Nathan Rigney, Lead Tax Research Analyst the Tax Institute at H&R Block, said. "Congress just made this decision when they enacted the law and they make that decision with other tax benefits as well, partially to keep people from gaming the system and to make tax administration a little bit easier."
"There are many criteria that must be met in order to claim the student loan interest deduction (as outlined on IRS.gov)," Susan Allen, senior manager for tax practice and ethics for the American Institute of CPAs, said. "One of the requirements is that your filing status is not married filing separately."
She added that filing separately may keep your monthly loan repayment plan from increasing .
"Each couple needs to make this decision based on various factors. For example, if one or both of the spouses have student loans with income-based repayment plans, filing separately could be beneficial if it results in lower student loan payments," Allen said.
You can claim the deduction if all of the following apply according to the IRS:
- You paid interest on a qualified student loan in tax year 2018;
- You're legally obligated to pay interest on a qualified student loan;
- Your filing status isn't married filing separately;
- Your MAGI is less than a specified amount which is set annually; and
- You or your spouse, if filing jointly, can't be claimed as dependents on someone else's return
Another thing to keep in mind, you can deduct up to $2,500 in interest you paid on your student loans that year, but that amount gradually decreases based on your adjusted gross income. That phaseout begins for couples filing together with an AGI of $135,000 or more.
"If you're filing jointly and you're earning more than $135,000 than it would begin phasing out, and so if you thought, 'oh we'll file separately,' and the lower earning spouse will be able to deduct the full student loan interest deduction, it's not going to work, because it will be limited to zero," Rigney said. "You're not allowed to take the student loan interest on the married filing separate return."
So we can Verify, if you and your spouse file separately, you will have to forfeit your student loan deduction.