Student Loan Interest Paid by You

• While most paid interest cannot be deducted on federal taxes, student loan interest paid can be deducted up to $2,500 for the 2009 tax year. To be eligible for the deduction, the student must pay for education-related expenses at a qualifying institution, must have been made from a qualified lender (not from a related person or employer), and must cover the education expenses of you, your dependents or your spouse. This paid interest can also include loan origination fees and voluntary interest payments paid before the repayment period begins or when the loan is in deferment.
  
  

Student Loan Interest Paid by Parents

• When parents pay the interest on their child's student loan, they are not eligible to claim this interest unless they took out the loan to cover the expenses. If the loan is in the child's name, the child may be eligible to claim the paid interest because it counts as a gift. You must earn less than $150,000 if you are married and filing a joint return or $75,000 if you are single to write-off these interest payments.
  
  

Higher Education Expenses

• If you paid higher education expenses out-of-pocket, these may be claimed as deductions on your taxes up to $4,000. These expenses must be paid to a qualifying institution for the education of you, your dependent, or your spouse and that student must be claimed on your taxes. The costs that qualify include tuition, books, and other academic fees. Costs for room, board, transportation, medical insurance, and personal expenses do not count. You can claim these expenses even if they are paid from student loan proceeds.
  
  

Job-Related Tuition

• If you itemize your deductions and continue your education for job purposes, then you may be able to write off some of these expenses. These expenses cannot be reimbursed by your employer and because they are considered miscellaneous expenses, you can only claim the portion of the expenses equal to more than 2% of your adjusted gross income (AGI). Of course, this amount also includes any other miscellaneous expenses you write off.
  
  

American Opportunity Tax Credit

• In addition to the deductions for higher education costs, you may be eligible for tax credits. For the tax years 2009 and 2010, the American Opportunity Tax Credit allows taxpayers to claim up to $2,500 in tuition, fees and supplies if their AGI is less than $90,000 (for single filers). These expenses must be incurred during the first four years of higher education and up to $1,000 of the credit can be paid back to the taxpayer in the form of a refund.