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Pass the tax test for student-loan interest

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in Small Business Tax

Q: I took out loans for college and grad school several years ago that I'm still paying off. My accountant says the interest isn't deductible in my situation. Is that true? L.G., New York

A: It's hard to say without knowing more facts. As a general rule, you can claim an above-the-line deduction of up to $2,500 for interest paid on qualified higher-education debt. However, this deduction is phased out for unmarried filers who have a modified adjusted gross income (AGI) between $50,000 and $65,000. For 2005, the phaseout is between $105,000 and $135,000 for joint filers. So, you may no longer qualify if your AGI for 2005 is too high. Tip: Prior to the 2001 tax act, you could deduct interest paid on student loans for only 60 months. But Congress eliminated this restriction for interest paid after 2001, even for loans incurred before 2002. So, some taxpayers may be able to deduct interest paid on student loans from years ago.

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