Student Loan Interest deduction includes fees/cap. interest this year?
I already sent in my 1040 and state (NJ) tax forms for 2002.
I now realize that I am confused about what I could
legitimately deduct as student loan interest this year. I
am eligible for up to $2500 adjustment to income for student
loan interest. The loans were initially taken out in
1994-96 and I first started paying back the loans in late
2001 (I deducted the small amount of interest paid in 2001
on my 2001 1040 with no confusion). This year, however, I
deducted the total amount of interest I actually paid for
the loans (e.g., $1638, indicated on the 1098-E as interest
payments applied in 2002), but later I realized that for the
first time my 2002 1098-E showed a higher number under: Box
1. Student Loan interest Received by Lender (about $2700).
This number includes loan origination fees and/or
capitalized interest (Box 2 is checked).
According to Publ. 970 2002 (p. 19), loan origination fees
and/or capitalized interest can be deducted as student loan
interest. I am confused because I'm not sure I "should"
deduct these (the loan fees were paid 7-9 years ago! and I
haven't paid the capitalized interest yet). Also, and
perhaps more important, the numbers don't add up:
Interest actually paid in 2002: $ 1638
Capitalized interest: $ 324
Loan origination fees: $ 1206
Total: $ 3168
I guess it doesn't matter so much that the numbers don't add
up because whether it's $2700 or $3168, I can still only
deduct $2500 max., but the disparity makes me wonder what is
included in Box 1 that is in excess of the $1638 interest
actually paid, and whether it does in fact include fees and
capitalized interest that would be eligible for deduction.
Any clues as to whether I could have deducted $2500 rather
than $1638? If so, how would I amend this? Must I deduct
the fees/cap. interest in 2002 or could I apply it to 2003
deduction? Is it worth it (would only save me about $130
since I'm in the 15% bracket)?
Welcome to the wild wacky world of student loans. By the
way, my biggest gripe about the whole loan process is the
way they hide that 1.5% loan origination fee.
To answer your questions as quickly and easily as possible,
I suspect the loan origination fee is amortized over the
repayment period and the capitalized interest is paid off as
principle as the same as any other principal according to
the amortization schedule. Probably not a perfect answer,
but as good as possible without getting technical.