If you have student loans you may be wondering if you qualify for a tax break. You can deduct the amount of your loan interest up to $2500.00 a year. However if you are single and you make more than $65,000.00 a year that amount is phased out on a tier system, so you may not qualify for the full $2500.00. You do not need to itemize to take advantage of this tax deduction.
Many people look at the tax break as a reason to not worry about paying off their student loans right away. Only the interest is tax deductible so you are not making up any money that you would not be paying out anyway. You can look at it as either paying the money in interest or the money in taxes. If you consider that if you paid off your student loans you would have that extra money each month, and just pay a bit more in taxes each month, you will find that you have additional money in your budget.
If your student loan interest rate is low, and you have other debt you may consider putting the student loan at the end of your debt payment plan. This will allow you to take advantage of the tax deduction as long as you still have debt, but you should not keep the loan in order to take the tax deduction.
This same logic can be applied to the tax deduction on mortgage interest. You should focus on the payment that you are keeping in order to save a small percentage on your taxes. Ultimately you do get to keep the money you either pay it to the bank or to the government. Putting off paying off your student loans or your mortgage because of the tax deduction just does not make logical sense.
