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martin-kosis
New Member

1098-E filed but no tax deduction was applied.

Last year I received a large tax break due to paying student loans, but this year there was no break. Why?
1 Reply
AnthonyC
Level 7

1098-E filed but no tax deduction was applied.

There can be quite a few reasons.

1.  The most likely is because the Student Loan Interest Deduction is subject to a phaseout, which means the amount you can deduct gets reduced when your modified adjusted gross income hits certain income levels and is even eliminated at certain income levels.  So, if your income is above the levels below for your filing status, then you will not be able to receive the deduction.

  • If your filing status is single, head of household, or qualifying widow(er), then the phaseout begins at $65,000 until $80,000, after which the deduction is eliminated entirely.
  • If your filing status is married filing joint, then the phaseout beings at  $130,000 until $160,000, after which the deduction is eliminated entirely.

2.  You may not qualify because you don't meet all the qualifications for the deduction listed below.  If you usually get the deduction, then the one that may have changed this year is #3 - if you choose to file as married filing separately this year, then you cannot take the deduction.

  • You paid interest on a qualified student loan in tax year 2016;
  • You're legally obligated to pay interest on a qualified student loan;
  • Your filing status isn't married filing separately;
  • Your MAGI is less than a specified amount which is set annually; and
  • You or your spouse, if filing jointly, can't be claimed as dependents on someone else's return.

https://www.irs.gov/taxtopics/tc456.html

3.  The other possible reason is that you may be receiving the deduction, but because of the other deductions and credits on your return this year, there just isn't an impact from it.  The student loan interest deduction will reduce your adjusted gross income (it is not refundable), which would normally lead to less taxable income, less tax liability, and a higher refund.

What could be happening is that between your personal exemption, deductions (standard or itemized), adjustments (HSA, retirement accounts, moving expenses, etc), and/or credits (child tax, education, earned income credit, etc), your actual tax liability has been reduced to zero even before your student loan interest deduction.  Thus, when you entered your student loan interest deduction, there could be no further tax benefit as you were already received the most refund possible (because this is a deduction and not a refundable credit), so it looked like the deduction was giving you no break.

You should be able to check on this by looking at your preview of your tax return.  If you go to My Account > Tools > View Tax Summary > Preview my 1040, then you will be able to see the first two pages of your return.  You should be able to follow along and see your student loan adjustment, your AGI, your taxable income, your liability, and any credits. 

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