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Preserve interest deductions on student loans

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in Small Business Tax

Q We recently consolidated several student loans for my son into a single loan. Will he still be able to deduct the interest? N.S., Scottsdale, Ariz.

A Yes. Assuming that your son otherwise meets the requirements, he may deduct the interest he pays on refinanced or consolidated student loans on his tax return. But the interest is not deductible if the loan isn’t used for education. Only interest paid for expenses such as tuition and room and board qualifies for the deduction. The maximum annual deduction allowed for student loan interest is $2,500.

Tip: For 2006, the deduction phases out for taxpayers with a modified adjusted gross income between $50,000 and $65,000 ($105,000 and $135,000 for joint filers).

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