Can I Deduct Student Loan Interest I Paid On My Kids Loan

[JoeMO]

My wife and I co-signed on a number of student loans for my kids. They are both adults now and not my dependants.

If I pay on some of their student loans who gets to deduct the interest paid when filing taxes? I assume the interest statement will come in their name. I think I can deduct the interest because they were my dependant at the time the loan was taken out and I co-signed.

Thanks,
Joe

 

[LUVourMarriotts]

I'm not a tax accountant, but... My guess is that you can only claim it if you receive a tax statement at the end of the year. I receive the tax statement every year, so I can claim it, but I'm no longer eligible to receive the deduction for other reasons.

 

[Dave M]

I am a tax guy....

Yes, you can probably deduct the interest if you pay it, because, as you stated, the kids were your dependents when you co-signed for the loans. Only a person who has legal responsibility for repaying the loans can claim the deduction and both you and your kids fit that description.

Payments are deemed to apply first to any unpaid interest, then to origination fees and principal. However, if any interest was capitalized (added to the principal balance of the loan) by the lender, you'll have to pay off the origination fees before any of that capitalized interest is deductible.

There is a limitation. The maximum deduction is $2,500 in a year if your gross income is less than $55,000 ($110,000 on a joint return). The $2,500 limitation is phased out as your income increases, such that if your gross income is over $70,000 ($140,000 on a joint return), you are not entitled to any deduction.

There are some other rules that occasionally come into play, so if you prepare your own tax returns, it's best to use TurboTax or one of the other computerized tax software programs to reduce the chances for error.