What Can I Deduct on My Return?

After you have totaled your income, you are allowed to deduct (subtract) certain amounts to arrive at adjusted gross income. For example, you can deduct interest paid on a qualified student loan (discussed next). You also are allowed to deduct certain amounts, such as a standard deduction or itemized deductions (discussed later), to figure your taxable income.

Deductible student loan interest. You may be able to deduct interest you pay on your qualified student loan. This applies to loan interest payments due and paid in 2000.

You may be able to deduct the interest even if you took out the loan before 2000. Regardless of when you took out the loan, you can deduct only interest paid during the first 60 months that interest payments are required.

Example 1. You took out a qualified student loan in 1993. You made payments on the loan every month as required, beginning October 1, 1995. You can deduct the interest of your first nine payments for 2000. You cannot deduct the interest on any later payments because they are after the 60-month period (October 1, 1995 -- September 30, 2000).

Maximum deduction. Your deduction for 2000 cannot be more than $2,000. This limit increases to $2,500 for 2001 and later years.

Limit on deduction. Your deduction may be limited depending on your modified adjusted gross income (AGI). See the Form 1040 Instructions and the Student Loan Interest Deduction Worksheet for these limits.

Claiming the deduction. This deduction is an adjustment to income, so you can claim it even if you do not itemize your deductions on Schedule A (Form 1040). You cannot claim the deduction if:

1. Another taxpayer claims you as a dependent, or
2. Your filing status is married filing a separate return.

You claim the deduction on line 24 of Form 1040 or line 17 of Form 1040A. See your form instructions for more information.

Use the Student Loan Interest Deduction Worksheet in the form instructions to figure your deduction.

Change in dependency status. You cannot deduct interest on a student loan for any year you are claimed as a dependent on another person's return. But you can, subject to other requirements, deduct payments made in a later year when you are no longer claimed as a dependent.

Standard deduction. Most people are entitled to deduct a certain amount called the standard deduction from their income. This amount is set by law and generally increases each year.

Dependent. If your parent or someone else can claim you as a dependent, your standard deduction is the greater of:

1. $700 ($1,800 if blind), or
2. Your earned income plus $250, but not more than $4,400 ($5,500 if blind).

Earned income for this purpose is income you received as payment for work you did, plus any part of a scholarship or fellowship grant that you must include in income.

Not a dependent. If no one can claim you as a dependent, you can subtract a standard deduction of $4,400 ($5,500 if blind).

Itemized deductions. You may have high medical bills, pay a lot of mortgage interest or state and local income taxes, or contribute large amounts to charity. If these expenses add up to more than the amount of the standard deduction, the law allows you to claim the higher total instead of the standard deduction. To do this, you must itemize (list) your deductible expenses on Schedule A (Form 1040). As a student, you probably do not have enough of these kinds of expenses to itemize, but keep this in mind for future years when you do.

Exemptions. Generally, you can subtract from income your own personal exemption. This amount is $2,800 for 2000. It is set by law and generally increases each year. However, if you can be claimed as a dependent by your parents or others, you are not entitled to a personal exemption.

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