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Tax Filter: Why would the fact that I paid interest on student loans last year mean I owe the IRS more money?

  • Tax Filter: Why would the fact that I paid interest on student loans last year mean I owe the IRS more money? I was doing my taxes on TurboTax today, and I have two 1098-E forms which say that I paid a total of $1,700 dollars in interest last year on student loans. This is the first year I'm paying on loans rather than taking them out, so I'm not sure how it works. My little counter at the top of the screen was saying I was getting an $800 refund until I entered that amount. After that, it said I would owe the IRS $450 this year. When it said I might be able to take the $1,700 as a deduction, that seemed like a good thing... so why do I owe now when before, I didn't? I don't get it.

  • Answer:

    Did you double check and make sure you were in the deduction area? Sounds like it somehow was calculated as income, possibly 1099 income.

abbyladybug at Ask.Metafilter.Com Visit the source

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Do you meet the exemption requirements? Are you NOT married filing separately? You can't claim the exemption if you are married filing separately according to IRS Publication 970. If you are single, head of household, or widow(er), you can claim the full student loan interest deduction if your adjusted gross income is less than $50,000, a lesser deduction if AGI is less than $65,000, and no deduction above that. If you are married filing jointly, the full deduction cutoff is $105,00, and $135,00 for no deduction. This is all according to Publication 970 for 2005 tax year. I am not an accountant (although I went to one a couple days ago to compute my own depressingly high income tax hit).

mdevore

Michael, you idiot. Where I said exemption, replace with deduction.

mdevore

Yeah, it does sound like you entered that as interest received rather than paid.

jenovus

$1250 tax on $1700 income? I don't think that putting the interest in the wrong column would be enough to do this. Sounds like there's more than one data entry error here.

nakedcodemonkey

That's what I thought, but I checked it, and I think it was the right place. So what you're saying is that t should definitely help me that I paid interest, not hurt me, right?! Blood from a turnip, I'm telling you!

abbyladybug

Didn't see the codemonkey post. I will recheck all of it again. There must be more wrong. Usually, I just input all the forms I've received, and it all works. This time it didn't happen that way.

abbyladybug

Ok, I'm going way out on a limb here. Another odd issue that might cause your problem is AMT, the alternative minimum tax. If you make enough money, or have certain kinds of income, deductions phase out and phase in draconian measure designed to keep millionaires from paying nothing in taxes kick in. Not your situation? Yeah, I kinda thought that seemed unlikely. If you can't find some strange data entry error, check for TurboTax updates. There is the very very small chance there is a calculation error in the program, and if there is they are surely hearing holy heck about it at Intuit.

ilsa

Were you itemizing or were you taking the standard deduction? Is the student loan interest an itemizable deduction or is it automatic?

bshort

AbbyLB, please tell us on which form, and line number, the $1,700 is being reported by TurboTax?

Snerd

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