Question: In 2024, Sunhi made all of her daughter Angelica’s student loan payments, including $3,500 in interest, through a check sent directly to the loan service provider. The loan is solely in Angelica’s name, and she is responsible for repaying it. Sunhi has no legal obligation to make the payments. Angelica’s modified adjusted gross income (MAGI) exceeds the threshold for claiming the student loan interest deduction. Sunhi wants to know if she could report the student loan interest deduction on her own 2024 tax return since her MAGI is below the threshold amounts.
Answer: No. Sunhi is not eligible to deduct the student loan interest on her return. Under §221, taxpayers may deduct up to $2,500 of qualified student loan interest paid during the year. However, one key requirement for taking the deduction is that the taxpayer must be legally obligated to pay the loan. In this case, the loan is in Angelica’s name, and Sunhi is not legally responsible for the debt, rendering her ineligible for the student loan interest deduction. In this scenario, Angelica is treated as receiving the payment from Sunhi and, in turn, paying the interest [Reg. §1.221-1(b)(4)].
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