Student Loan Interest

[Brian EA]

Client received 1098E with box 1 showing $18742.54 as student loan interest received by lender .
box 2: box 1 includes loan origination fees and /or capitalized interest.

client says she did not pay any student loan interest .

If she paid , only $2500 can be deductible.

Any thoughts/ advice/ explanation.

The tax book does not give any explanation in regards to student loans and capitalized interest

thanks
brian

[ChEAr$]

Good GRIEF!

Client received 1098E with box 1 showing $18742.54 as student loan interest received by lender .
box 2: box 1 includes loan origination fees and /or capitalized interest.

client says she did not pay any student loan interest .

If she paid , only $2500 can be deductible.

Any thoughts/ advice/ explanation.

The tax book does not give any explanation in regards to student loans and capitalized interest

thanks
brian

18000$ plus? for origination fee? (that's what it is)

Must be one hell of a large loan; where's he going, Harvard?

Anyway, origination fees as interest are deductible subject to limitations.

[David1980]

Hmm, got one with a similar amounts but also with the payment history & there was a consolidation done during the year.

Box 1 shows $5085 box 2 is checked, so some loan origination fees or capitalized interest is included.

Total payments throughout the year were $2484.64.

The consolidation also shows as a payment though. $37,565.10. That's obviously the total of all the TP's student loans that were "paid off" by the consolidated loan.

I'm thinking the extra has gotta be capitalized interest being considered paid since there's a $37k payment. Per IRS Pub 970, capitalized interest is treated as interest for the deduction as payments of principal are made on the loan.

The taxpayer obviously would prefer to deduct just the $2484.64 as student loan interest since they get no benefit for the amount over $2500 and could use that in future years. However since it was consolidated during the year, is the full loan considered paid even though they only consolidated?

(I imagine this could go the other way as well. If the actual payments were only $500, would a consolidation allow the TP to deduct more than actually paid?)

[Earl]

Student Loan Interest

If client did not make any payments at all during year she will not have any student loan interest deduction.

You should try to get a look at the transcript of student loan interest to determine amount of actual loan, origination fees, and capitalized interest (amount capitalized is unpaid interest accrued and is added to principal amount)

When client makes any payment it will first be first be applied (for student loan interest deduction) to interest accrued during year, next to capitalized interest, and if any left to the original loan amount.

From the amount shown it looks like all payments she makes will be deducted as interest up to the $2,500 cap for quite a while.