Although student loan payments often feel burdensome, they offer a financial perk during tax time: If you made payments on your student debt over the year (and live in one of the 37 participating states or Washington, D.C.), you can deduct the student loan interest on your federal taxes up to the tune of $2,500.
This deduction lowers your Adjusted Gross Income (AGI), so you only have to pay taxes on the reduced amount. Both federal and private student loans are eligible for this tax break, and you can claim even if you don’t itemize your deductions.
But the federal government isn’t the only one providing tax advantages to student loan borrowers — some states offer student loan tax deductions, too. If you live in any of the following states, you might also be able to deduct student loan interest on your state income tax return or even claim a credit.
If you’re a student loan borrower in Arkansas, you might be able to claim a student loan interest deduction on your state tax returns. If you used your loans to pay for qualifying educational expenses, you could get a deduction of up to $2,500.
Similar to Arkansas, Massachusetts allows student loan borrowers to claim a student loan interest tax deduction of up to $2,500, assuming they meet all required criteria.
Maine offers a student loan interest tax credit to college graduates working and living in the state. While a tax deduction allows you to lower the amount you get taxed on, a credit like this one can be even better since it actually subtracts the given amount from your tax bill. The value of Maine student loan benefit varies depending on when you graduated and what your profession is, with the best perks going to graduates with a degree in science, technology, engineering or math.
Maryland offers the Student Loan Debt Relief Tax Credit to Maryland residents who have incurred at least $20,000 in student loan debt for college or graduate school. As long as you have a balance of at least $5,000 when you apply, you could receive this tax credit of $5,000.
Minnesota residents with student loan debt could qualify for the state’s student loan credit. Depending on your income, loan payments and original loan balance, you could receive a credit for up to $500 each year as a single filer, or up to $1,000 as a married couple.
Find out if your state offers tax breaks for student loan borrowers
The list above is subject to change and is by no means definitive. Do some research to find out if your state offers any additional breaks for student loan borrowers.
Likewise, lawmakers in some states, including Delaware, Ohio and New Jersey, have proposed introducing new tax breaks for residents paying off student loans. So keep an eye out for future state legislation which could make paying off your student debt a little easier this tax season.
And remember that most states allow you to claim the federal student loan interest deduction, which lowers your taxable income by up to $2,500. If you paid qualifying educational expenses, you could also be eligible for the American Opportunity Credit or Lifetime Learning Credit.
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