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If you paid interest on a student loan in 2007, you may be eligible to deduct up to $2,500 of the interest you paid, whether the loan was for your own education, your spouse's, or that of a child or anyone else who was your dependent at the time the education was undertaken.
All student loan interest payments made in 2003 and later years are eligible for the deduction. The 60-month loan limitation in effect prior to 2002 no longer applies.
In 2007, the deduction is phased out for those with modified adjusted gross income (AGI) between $55,000 and $70,000 (and in 2008) if you are single, or between $110,000 ($115,000 in 2008) and $140,000 ($145,000 in 2008) if filing a joint return (these rates may be adjusted annually for inflation). You can't claim this deduction at all if you are married filing separately, or if you can be claimed as a dependent on someone else's return.
For purposes of this deduction, "modified adjusted gross income" is computed by taking the AGI amount from Line 38 of Form 1040, and adding back any foreign earned income exclusion, foreign housing exclusion or deduction, and the exclusion of income for residents of American possessions.
To figure the limit, take the portion of your modified AGI that exceeds $55,000 (or $110,000 if you are married filing jointly) and divide it by $15,000 ($30,000 if filing jointly). The resulting decimal should be multiplied by your interest deduction to determine the amount that you will lose due to your high level of income.
Claiming the deduction. You don't need to fill out any special forms to claim the student loan interest deduction, and you don't need to itemize your deductions to take advantage of it. The deductible amount is simply written on Line 33 of Form 1040, or Line 18 of Form 1040A, and subtracted from your income.
Be careful. Not all student loans qualify for the deduction.
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