06 Mar Tax benefits for student loan payments

Q. My husband, when he divorced from his now ex-wife, was ordered to pay $20,000 towards his daughter’s college loans. When we sold the house he had with his ex-wife, she put a hold on the money from sale of the house. They took the $20,000 from the sale. Is there anywhere we can claim this $20,000 on our taxes? The check for the money was sent directly to student loan.
— New wife

A. There are certain income tax benefits related to college expenses, but you have to follow the rules to qualify.

The Tuition and Fees Deduction expired at the end of 2016, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

Then there are Education Credits and the Student Loan Interest Deduction.

“To be eligible for Education Credits, your dependent child must have been a student during the tax year. From your question it appears the child is no longer in college,” Kiely said. “This means that the only possibility that remains is the Student Loan Deduction.”

The requirements for a qualified student loan are that the loan was taken solely to pay qualified education expenses that were for you, your spouse, or a person who was your dependent when you took out the loan. It must have been paid or incurred within a reasonable period of time before or after you took out the loan, and it must have been used for education provided during an academic period for an eligible student.

“The first qualification is the loan has to be taken out by the taxpayer,” Kiely said.

If your husband took out the loan in his name, it is his debt, not the daughter’s, Kiely said, noting you called the loans the “daughter’s college loans.”

“If the loans belong to the daughter, then dad is not eligible for the loan interest deduction,” Kiely said.

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This post was first published in March 2018.