It might make sense for some people to adjust when they pay their Dec/Jan student loan payment
12-01-2012 12:33 PM
I just wanted to give some people something to ponder on, especially new graduates. I assume most people know that Student loan interest is deductible, up to 2500.
Most students don't make payments while in School, and the interest can build up, easily a couple grand or more. When you are a paying back your student loans, interest is always paid back first, so your first couple payments (or first years of payments) might be 100% interest.
Lets assume you are a new graduate (May 2012). Your payment is 250 a month, and you owe at least 3000 in interest. Your first payment was due in November. You will not pay over much in interest this year, and can deduct all of the interest paid, but next year you are very likely to pay over 2500. If you make your Jan payment on December 31st, you can claim the interest deduction a year earlier, not loose that benefit if you will max out next year.
There may be situations where the opposite is true. Last year I had already paid over 2500 in interest, so if I made a payment in December, I would have not got to claim that interest as a deduction, so I made the December payment in January, and will claim it on this years taxes. (just make sure your payment doesn't end up being late).
If you are not a new college graduate, but you have a quickly rising income, your income next year could make you ineligible for the deduction. Make your Jan. payment in late December, and deduct that interest this year while you still can.
This may not apply to most people, but I think for some people it may help them out a bit. One other thing I am doing this year is making a small payment of about 50.00 on December 31st. It will let me deduct that interest deduction a year earlier, I'll gladly pay something a day early to get the write off a year earlier.