How to Use Form 1098-E for the Student Loan Interest Deduction
This simple form tells you how much you can deduct if you qualify.
Receiving one or more IRS Forms 1098-E might mean nothing at all to your tax situation, or it might represent a tax deduction—money you can shave off your overall gross income so you only pay federal income tax on the balance. Receiving this form doesn’t automatically mean you qualify for a tax break, but it helps you determine how much of a break you’ll get if you do qualify.
Officially called the Student Loan Interest Statement and not to be confused with Form 1098-T, Form 1098-E is a relatively simple form to decipher.
Who Submits Form 1098-E?
This isn’t a tax form that taxpayers must complete and submit to the IRS. Rather, lending institutions must do so—specifically, any and all lending institutions with which you have student loans, but only if you paid $600 or more in interest on the loans during the tax year. Otherwise, lenders aren’t required to send you or the IRS a copy of this form.
This $600 threshold isn’t per loan. It’s an aggregate limit for all student loans you might have with that particular lender. For example, you might have paid $400 in interest on one loan and $205 on another. You should receive at least one Form 1098-E from that lender because the total is more than $600. And you might receive two forms, one for each loan, even though individually they don’t meet the threshold requirement.
Technically, a “loan servicer” is supposed to send out Forms 1098-E. Some lenders act as their own servicers, managing their loans, while others contract with separate companies to do so. In this case, it’s the contracted company that’s responsible.
You should receive these forms by the end of January if you’ve paid enough interest to warrant one or more. You might receive them by snail mail or electronically. Both methods are perfectly OK with the IRS.
What If You Don’t Receive a Form 1098-E?
It doesn’t necessarily mean that you can’t claim a tax break for your interest expense if you paid less than $600. The threshold just means that the institution doesn’t have to bother sending you the tax form. You can find out exactly how much you paid the institution by contacting your loan servicer if you don’t receive a form. Ask for the information in writing so you have a tangible record of it to support your tax return.
You Might Get a Tax Deduction
The information on Form 1098-E applies to the student loan interest deduction. Many taxpayers with student loans can claim this deduction, but a few qualifying rules apply.
First, the loan must be in your name, although it can pay for your education personally or for that of your spouse or one or more of your dependents. Income limits apply as well—if you earn too much, the amount of your deduction will begin reducing until, finally, it hits zero. These limits are based on your modified adjusted gross income (MAGI), not your gross overall income. They break down like this in 2018:
- Phaseout begins at $65,000 for single, head of household, and qualifying widow(er) filers.
- Phaseout begins at $135,000 for married taxpayers filing joint returns.
- Deduction is eliminated entirely at $80,000 for single, head of household, and qualifying widow(er) filers.
- Deduction is eliminated at $165,000 for married taxpayers filing joint returns.
These thresholds are adjusted for inflation so they go up a bit in 2019:
- Phaseout begins at $70,000 for single, head of household, and qualifying widow(er) filers.
- Phaseout begins at $140,000 for married taxpayers filing joint returns.
- Deduction is eliminated at $85,000 for single, head of household, and qualifying widow(er) filers.
- Deduction is eliminated at $170,000 for married taxpayers filing joint returns.
You can’t claim the student loan interest deduction if you’re married but file a separate return, or if you can be claimed as a dependent by someone else.
The nice thing about this deduction is that you don’t have to itemize to claim it if you do qualify. The student loan interest deduction is technically an “adjustment to income,” so you can claim it and claim the standard deduction for your filing status or itemize your deductions.
The Information on the Form
Form 1098-E is pretty straightforward. The total amount of interest you paid during the year will appear in Box 1. That’s the number you’ll use to calculate the amount of your deduction, at least in most cases. It includes payments you made up until 5 p.m. on Dec. 31 of the tax year. It does [not] include any principal you paid.
You might also notice a check mark in Box 2. This indicates that the amount in Box 1 does not include capitalized interest or loan origination fees, but this basically only applies to loans taken out before Sept. 1, 2004. These extra charges are also deductible, but only if they’re associated with a loan taken out before that date.
You can take the deduction on line 33 of Schedule 1 of the new 2018 Form 1040.
Form 1040 changed significantly for tax year 2018 and this deduction is no longer entered in the same place. Tax returns for years before 2018 do not include Schedule 1. Use line 33 directly on Form 1040—not on Schedule 1—if you’re claiming the deduction for tax year 2017 or earlier.
Your Student Loan Must Be “Qualified”
One last caveat: Not all student loans qualify for this deduction, and not all will result in you receiving Form 1098-E. Interest on loans acquired through a qualified employer plan or a contract purchased under a qualified employer plan do not require a form.