satellite_chris wrote:

- quote -

Your payment of tuition and fees for graduate school can
trigger a tax deduction for the tuition & fees OR a Lifetime
Learning Credit for the tuition and fees AND a deduction for
student loan interest.

If you pay qualified higher education expenses to an
eligible college, then you may avail yourself of either the
tuition deduction or the credit. Take whichever one you are
eligible for and the one that provides the greater state and
federal tax benefit. The law doesn't care where you obtained
the funds to pay the tuition. Borrowed funds are the same
as your own cash.

If you borrow the funds and also pay interest on the student
loan, you may be able to deduct up to $2500 of interest
expense.

IRS Pub 970 explains all the higher education tax benefits
and has the eligibility rules.

http://www.irs.gov/pub/irs-pdf/p970.pdf

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

I am confused about how a student loan plans in to the tax
deduction eligibility. I have a couple different scenarios
that I need some help with to make sure I don't cheat myself
out of the tax benefits when paying for my graduate school.
This is my first year of graduate school so I am not familar
with past 1098-T's.

Scenario A (The obvious)
I pay my graduate school bills entirely through cash or
credit card or even a private loan. I should be able to
claim up to the full $4000 as a tax deduction assuming the
2007 laws match 2006.

Scenario B
Graduate school is paid by my Stafford loan entirely in
2007. I pay only the interest each month. My assumption is
that I can only claim the interest that I paid, is that
true? Can I claim any principal that I paid or even the
full amount up to $4000 that the Stafford loan paid? It
sounds like it all depends on how this is reported on the
1098-T and I have no clue how it would be reported in this
scenario.

If I continue paying on the loan for two years after
graduating, will there be any tax deductions in those year
post-graduation?

Scenario C
Basically the same as Scenario B, but I pay off the at least
$4000 towards the student loan before the end of 2007.

In the end, if I can't afford it all in cash, I am wondering
if there is any benefit to me putting it on a low interest
credit card and trying to pay it off as fast as possible AND
getting a tax deduction if the Stafford loan makes me
uneligible for the tax deduction.

Thank you in advance for your advice.

Chris

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >