Treasury Issues Final Regulations On Student Loan Interest Deduction

The Treasury Department and the Internal Revenue Service this week issued final regulations relating to the deduction for interest paid on qualified education loans.

"The final regulations issued today clarify which amounts qualify for the student loan interest deduction to ensure that students obtain the maximum deduction permitted under the law," said Acting Assistant Secretary for Tax Policy Greg Jenner. "These regulations also provide guidance to help lenders meet their reporting obligations."

The student loan interest deduction was enacted in 1997 and expanded in 2001, when Congress eliminated the 60-month limit on the time during which interest payments are deductible. These final regulations provide guidance on the treatment of amounts such as capitalized interest and loan origination fees, the deductibility of interest payments made by persons other than the taxpayer, the definition of "qualified education loan," and other issues.

Related regulations on information reporting by institutions that receive payments of interest on qualified education rules were finalized in 2002. Those regulations provided a transition rule for reporting loan origination fees and capitalized interest. In response to comments, the student loan interest regulations issued today provide additional time for institutions to begin reporting payments of capitalized interest and loan origination fees by extending the transition rule for eight months. Institutions will be required to begin reporting those amounts with respect to qualified education loans made on or after September 1, 2004.

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