Can You Claim a Parent PLUS Loan Tax Deduction?

Navigating the complexities of tax deductions can be daunting, especially when it comes to education-related expenses. Parent PLUS Loans are a common option for financing higher education, and many parents wonder if they can ease their financial burden through tax deductions on the interest paid.

Understanding whether you can claim a deduction is important, as it could lower your taxable income and save money. This article explores the key aspects of eligibility and the process of claiming a Parent PLUS Loan interest tax deduction.

Eligibility Requirements

To claim a tax deduction for interest paid on a Parent PLUS Loan, you must meet specific IRS criteria. The student loan interest deduction allows taxpayers to deduct up to $2,500 of interest paid on qualified student loans. Parent PLUS Loans typically qualify, as they are taken out solely for education expenses for a student enrolled at least half-time in a degree program. The taxpayer claiming the deduction must be legally obligated to pay the loan interest—if you are the parent who took out the loan, you are eligible if other conditions are met.

Your filing status affects eligibility. The deduction is unavailable if you file as “Married Filing Separately” or if you can be claimed as a dependent on someone else’s tax return. These rules ensure the deduction is reserved for those directly responsible for the loan payments.

Deductible Interest

The IRS permits taxpayers to deduct interest paid on qualified education loans, including Parent PLUS Loans, up to $2,500 annually. The exact amount depends on the interest paid during the tax year.

To calculate deductible interest, keep detailed records of all payments made, including the principal and interest portions. Loan servicers typically issue Form 1098-E, which reports the total interest paid in the tax year. Verify the information on the form matches your records to ensure accuracy.

This deduction is an adjustment to income, meaning you can claim it even if you don’t itemize deductions on your tax return. However, it is subject to income phaseouts, which may reduce or eliminate the benefit for higher-income earners.

Income Phaseouts

Income phaseouts for the Parent PLUS Loan interest deduction are based on modified adjusted gross income (MAGI). As of 2024, the phaseout begins at $75,000 for single filers and $150,000 for married couples filing jointly. Single filers with a MAGI exceeding $90,000 and joint filers above $180,000 are ineligible for the deduction.

MAGI includes adjusted gross income (AGI) plus certain deductions and exclusions, such as foreign earned income exclusions. Accurately calculating your MAGI is essential to determine eligibility. The phaseout range gradually reduces the deduction, targeting middle-income earners.

Taxpayers near the threshold can consider strategies to manage their MAGI, such as maximizing retirement contributions to lower AGI or timing income and deductions across tax years to remain eligible.

Documents You Need

Organizing the necessary documents is crucial for claiming the Parent PLUS Loan interest deduction. The primary document is Form 1098-E, issued by your loan servicer, which details the total interest paid on your loans during the tax year. Verify its accuracy against your payment records to avoid discrepancies.

Maintain a detailed record of all loan payments, including dates, amounts, and the portion attributable to interest. These records support the figures on your tax return and can be useful if the IRS requests additional information.

It’s also helpful to keep prior years’ tax returns, especially if your filing status or income has changed. These documents can help track eligibility for deductions and phaseouts over time. Additionally, ensure you have current-year tax documents, such as W-2s and other income statements, to calculate your MAGI accurately.

Filing Steps

Claiming the Parent PLUS Loan interest deduction requires careful attention during tax filing. The deduction is an adjustment to income, so you do not need to itemize deductions.

On Form 1040 or 1040-SR, locate the section for “Student Loan Interest Deduction.” Enter the total interest paid, as reported on Form 1098-E, up to the $2,500 limit. If you paid less than this amount, only deduct the actual interest paid. Tax software often simplifies this process by guiding users through the necessary calculations. If filing manually, ensure the deduction is correctly transferred to the appropriate line on your tax return.

Double-check all figures, particularly your MAGI, as it determines your eligibility for the full deduction or a reduced amount due to income phaseouts. Filing electronically is recommended to reduce errors and expedite processing. After filing, retain all supporting documentation, including Form 1098-E and payment records, for at least three years in case of an audit.