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When:
January 01, 2002

Who it Affects:
For taxpayers paying back student loans for themselves, their spouses, or dependents. Also families of students attending college.

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2002 Tax Law Changes
Expanded tax breaks for college students and their families

Two big changes make financing college easier starting in 2002.

First, the student loan interest deduction is more valuable for tax-year 2002.

Second, you can now deduct up to $3,000 in qualified education expenses.

Here's how the interest deduction works:

Up to $2,500 in student loan interest paid in 2002 can be deducted on 2002 returns unchanged from 2001. But you now can claim the deduction indefinitely. Under the old law, you could only claim the deduction for the first 60 months after you were required to start making payments.

The deduction can be claimed regardless of whether you itemize your deductions on Schedule A.

But eligibility has been expanded so more taxpayers can use the deduction. If youre married filing jointly, you can deduct all $2,500 if your AGI is $100,000 or less. It phases out between $100,000 and $130,000. In 2001, the phaseout started at $60,000.

For other filers, you get the full deduction if you earn $50,000 or less, up from $40,000 in 2001. The deduction phases out between $50,000 and $65,000

On the educational expense deduction, you can deduct up to $3,000 in qualified expenses in 2002 and 2003. The ceiling rises to $4,000 in 2004. You can qualify for the deduction if your income is under $130,000 or less (for couples filing jointly) or under $65,000 for singles.

You can't claim the deduction and the Hope and Lifetime Learning credits for one student in the same year.
Related Tax Article(s): 6 tax-savvy ways to pay for college