1. Can I deduct collection fee incurred when I settled with my student loan lender? 2. Can I deduct collection fee settled with IRS on installment pay for back taxes?

[polina_parusis]

1. I settled with a collection agency that is collecting my student loans now. The settlement / collection fee (not the principal that I am paying) is $10,000 (in addition to the principal amount of the loan). Can I deduct this $10,000 an expense? If not, can I add this amount to the principal loan ($150,000) and deduct as interest? 

2. I also settled with IRS to pay taxes for 2015. Can I deduct this amount, interest, and penalty in 2016 on my tax returns? 

Thank you

[RichardG · Accepted solution]

1. Only the interest on your student loan is deductible.  Other fees connected with the loan, such as late fees, collection fees, etc., are not deductible.
2. There is no deduction for federal income taxes, interest or penalties.

[jerry2000]

The answer is No, No, and No. None of those expenses are deductible at all.