All interest paid on qualified residential mortgages that do not exceed $750,000 (including points paid to obtain a mortgage), home equity loans as long as they are used to buy, build or substantially improve the taxpayer's name that secures the loan, and business debt is deductible based on a formula under the Tax Cuts and Jobs Act of 2017. With certain limitations, you may also deduct interest on loans used for investment purposes. Interest expenses related to certain passive activities (trade or business in which you do not materially participate) may be deductible, as well. You are allowed to deduct these interest expenses as long as they are paid during the tax year on a valid debt.
Remember, you cannot deduct interest paid on credit cards or loans for consumer items, such as appliances and cars, nor can you deduct interest paid on a loan used to purchase tax-exempt securities.
Up to $2,500 of interest paid on student loans may be deducted. Since this is an "above-the-line" deduction, even non-itemizing taxpayers benefit. The loans may be used for qualified higher education expenses, such as tuition, fees, room and board, and books.
If you are in a higher tax bracket, you may not be eligible for this deduction because of phaseout rules. To see if you qualify, see below:
| Provision | Single | Married Filing Jointly |
|
Child Tax Credit1 |
Starts at $200,000 AGI2 |
Starts at $400,000 AGI2 |
|
Adoption Credit |
$211,160 - $251,160 AGI |
Same as single |
|
Interest on Education Loans |
$70,000 - $85,000 AGI |
$140,000 - $170,000 AGI |
|
Education Tax Credits |
(a) Starts at $80,000 AGI |
(a) Starts at $160,000 AGI |
|
Coverdell Education Savings Accounts |
$95,000 - $110,000 AGI |
$190,000 - $220,000 AGI |
|
Education Savings Bonds |
$81,100 - $96,100 AGI |
$121,600 - $151,600 AGI |
| Individual Retirement Accounts (IRAs) | ||
| Active participants in another plan | $64,000 - $74,000 AGI | $103,000 - $123,000 AGI3 |
| Not an active plan participant | No limitations apply | $193,000 - $203,000 AGI4 |
| Contributory Roth IRAs | $122,000 - $137,000 AGI | $193,000 - $203,000 AGI |
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1. The credit is reduced by $50 for each $1,000, or fraction thereof, of AGI above the threshold.
2. AGI is adjusted gross income. Different modifications may apply depending on the specific provisions.
3. Applies when both spouses are active plan participants or only the participant spouse contributes.
4. Applies if at least one spouse is not an active participant.
