Question about SL Interest Deduction

[dawniedawn67]

The money I borrowed on my original SLs was from Sept. of 1985 to December of 1987 for a total of 5 semesters. I paid on the loan from 1987 to 1989, and then paid nothing until I consolidated my loans in 1999. I made a few payments on the loan then, and then deferred it until 2005, when it went into default.

 

I began rehab in February of this year and, between my rehab payments and my garnished tax refund, I have paid over $3000 in interest on this loan.

 

Will I be able to take the $2500 deduction on my taxes this year? I have been reading on the IRS website, and what is confusing me is their use of the phrase "within a timely manner" of when the loan originated. The loans originated 22 years ago, but since it was picked up by DLSS when my rehab was completed, is it considered a 'new' loan?

 

Thanks for any info you can give me!

[Saria]

Reading Pub 970 should help you with your questions. The timely manner/reasonable period requirement seems to mean that the qualifying expenses (i.e. tuition, etc) must have been paid or incurred within 90 days of the loan disbursement, possibly 60 days since your loans were taken out before 1997. This is more related to making sure the loan funds were used to pay true educational expenses, rather than your paying back the loans in a timely manner. And yes, Pub 970 specifically says that you can deduct interest paid on a consolidation loan.

[dawniedawn67]

Reading Pub 970 should help you with your questions. The timely manner/reasonable period requirement seems to mean that the qualifying expenses (i.e. tuition, etc) must have been paid or incurred within 90 days of the loan disbursement, possibly 60 days since your loans were taken out before 1997. This is more related to making sure the loan funds were used to pay true educational expenses, rather than your paying back the loans in a timely manner. And yes, Pub 970 specifically says that you can deduct interest paid on a consolidation loan.

 

 

Thanks for the info!

[LynnInMN]

Your lenders/servicers are suppose to send you a 1098-E for interest paid.