In 2021, the deduction for student loan interest is phased out for single people with a MAGI between $70,000 and $85,000 and joint filers with incomes between $140,000 and $170,000. If your income falls within these ranges, you are allowed to take only a portion of the full deduction, depending on how far into the phaseout range you are.
Example: Hal pays $1,000 worth of interest on a qualified student loan during the year. Hal and his wife file a joint tax return, and their total MAGI for the year is $146,000. This means they are $6,000 into the $30,000 phaseout range ($146,000 minus $140,000). To calculate the available deduction, multiply the amount of interest paid during the year ($1,000) by the fraction of the phaseout range remaining ($24,000/$30,000 = 0.8). The result is that the couple can claim a student loan interest deduction of $800 ($1,000 x 0.8).
Example: Assume the same facts, but instead Hal pays $3,000 worth of student loan interest. The maximum student loan interest deduction for the year is $2,500, but this figure must be reduced because Hal's joint income is in the phaseout range. To calculate the available deduction, multiply the maximum student loan interest deduction ($2,500) by the same fraction in the example above, which represents the phaseout range remaining ($2,500 x 0.8). The result is that the couple can claim a student loan interest deduction of $2,000.