Discussion:Student loan interest
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Discussion Forum Index --> Tax Questions --> Student loan interest
| February 7, 2006 | |
| I have a client who has a large student loan balance but he was unable to pay on it last year and it was on deferment. His interest was capitalized which increases the loan amount. His 1098 shows $0 interest paid but really it was paid by the increase in the loan principal. He had over $9000 of interest capitalized, (his principal is over $60,000). Of course the deduction is limited to $2500, but shouldn't he get to take the interest deduction for this? | |
| 7 February 2006 | |
| Your client can only deduct expenses which he has paid. Capitalized interest has not been paid. He may be able to deduct this interest later even though it has been capitalized. I'm not sure. However, an expense he/she has not paid cannot be deducted. | |
| 6 February 2008 | |
| I had to look this one up, so here is from PUB 970:
"Capitalized interest. This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. No deduction for capitalized interest is allowed in a year in which no loan payments were made." I hope that when payments are eventually made, the 1098 accounts for deferred interest paid. I've wondered about the negative amortized home loans too. Is that interest ever reported on a 1098 when paid or refied? Or is it lost? I don't want to track it. | |
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