Post # 1
Member
13946 posts
Honey Beekeeper
First of all — I know every state is different and every situation is different, but any vague guidance would be appreciated on this!
DH and I both have student loan debt. His is significantly higher than mine. We got married this year, so now we’re trying to figure out how to file taxes — jointly or separately. DH is on an Income-Based Repayment plan, and I am on a 10 year plan. We pay a 4 figure amount each month for student loans.
Option 1: Married Filing Jointly
– Student loan interest deduction (We’d get the maximum $2500 deduction)
– Both incomes used for IBR, and proportionally divided for repayment – IF he still qualifies for IBR.
Option 2: Married Filing Separately
– No student loan interest deduction (not allowed when filing separately)
– Only one income used for IBR, and he would still qualify
– Huge mess of trying to figure out how to divide mortgage interest, property taxes, etc.
Anyone been in this situation willing to shed some light? Advice from accountants/CPAs greatly appreciated!
*We are not in a community property state
Post # 3
Member
1542 posts
Bumble bee
File jointly. all you’d lose is his IBR (because they’ll count your salary) which isn’t a huge loss but you’re going to get better tax rates etc everywhere else including the 2500 deduction.
Its going to make his student loan payments go up most likely. But if you switch and put his loans on Graduated repayment then it shouldn’t be that much higher monthly right now. Graduated gives you a low payment right now and then every 2 years it goes up when you hopefully will be making more money. IBR should only be used short term anyway until you make more money. Unless his income potential is extremely low in comparison to his student loans…. You’re definitely going to get the loans paid off in 25 years and then your just paying loads in interest. I’m talking easily Double the current principle.
This is all federally filing so it will be the same in most states.
Post # 4
Member
3339 posts
Sugar bee
- Wedding: April 2013 - Rhode Island
I don’t have a comment on filing separately vs jointly. But I just wanted to pop in and say that you can take a student loan interest deduction when filing on your own. It’s an above the line deduction, and I’ve been doing it every year that I’ve been single.
Post # 5
Member
13946 posts
Honey Beekeeper
@Christy42213: The tax code says that if you’re married filing separately that the interest deduction doesn’t count. If you’re single/unmarried, it still works, and if you’re filing jointly, it works. But married filing separately loses that perk.
@Kate0558: The problem is, if he loses IBR, we can’t afford the payments. We live in a really expensive area, and he went to private law school (so imagine the number…). Also, he isn’t working as an attorney now, so he doesn’t have the perk of that nice cushy salary. I should have him check out the graduated plan though to see how that would work. Feasibly, by the time it got up significantly higher, my loans would be paid off and we’d have the extra money.
Post # 6
Member
18628 posts
Honey Beekeeper
If you can’t afford to pay the payments anyway, I don’t see what other option you have because the tax savings won’t be enough to make up for an increase of payments that you can’t afford.
Normally, I don’t recommend filing separately but I don’t know if you have a choice.
Post # 7
Member
1152 posts
Bumble bee
@abbie017: Oh NO now you have me worried…married filing separately doesn’t allow you to deduct student loan interest?!? We won’t be dealing with this until next year thankfully but as of right now, we both max out the $2500 deduction…boo that sucks!
Post # 8
Member
13946 posts
Honey Beekeeper
@MrsSaltWaterTaffy: I guess “can’t afford” is the wrong phrase. We could afford it, with some cutting back. It would increase our monthly payment by probably another $500. It would cut into how much we’re able to save a month. We could make it work, it’s more trying to decide if sacrificing fun money and, to an extent, savings, is worth it.
Why do you usually not recommend not filing separately? (Just curious)
Post # 9
Member
1461 posts
Bumble bee
@abbie017: I’m sorry, I don’t have any advice…but can you still get a loan interest deduction if married, filing separately, and only one person has loans? Curious, I’m the one with law school loans (FI has none) and we will have to decide whether to file jointly or separately after we get married. Not on IBR though, I have the 10 yr plan too.
Post # 10
Member
13946 posts
Honey Beekeeper
@Jewelieee: I don’t think you can… See bullet point 3 below. It sucks bigtime:
(
http://www.irs.gov/taxtopics/tc456.html)
Topic 456 – Student Loan Interest Deduction
You may be able to deduct interest you pay on a qualified student loan. Generally, the amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid.
The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Form 1040, Schedule A (PDF).
You can claim the deduction if all of the following apply:
- You paid interest on a qualified student loan in tax year 2013
- You are legally obligated to pay interest on a qualified student loan
- Your filing status is not married filing separately
- Your modified adjusted gross income is less than a specified amount which is set annually, and
- You and your spouse, if filing jointly, cannot be claimed as dependents on someone else’s return
Post # 11
Member
1461 posts
Bumble bee
@abbie017: Ah ok, thanks for the info. That sucks!!
I think if you and the other Bees are right, you guys need to file jointly and just give up IBR and make some lifestyle sacrifices. Good luck!
Post # 12
Member
3339 posts
Sugar bee
- Wedding: April 2013 - Rhode Island
@abbie017: Wow, that sucks. Can you go to H&R Block or someplace like that and get the opinion of a tax attorney/CPA? I feel like you need reliable advice tailored to your specific situation. I’m not sure you can get that here from the bee.
Post # 13
Member
13946 posts
Honey Beekeeper
@Christy42213: Yeah, we’re going to see an accountant. I just wanted to get a feel for what other people have done (like I said in the OP, I know everyone/every place is difference, and I just wanted vague guidance).
Post # 14
Member
1542 posts
Bumble bee
@abbie017: Theres a lot of different payment plans… I’d have him call his student loan company and find out other payment plan options…. I could never afford standard repayment on my loans either but IBR isn’t always the cheapest.
If he has loans over 35k which i’m assuming he does then you can also get Extended repayment (stretches it out to 25 years) or Graduated Extended Which does the Graduated plan but bases it on a 25 year payoff instead of 10.
Heres a very simply calculator for graduated repayment.
http://www.aie.org/paying-for-college/repayment-plans/graduated-repayment-calculator.cfm
Another thing to remember is the payment plans can always be changed and readjusted as your needs and finances change. I plan on keeping my loans on graduated until the payment gets up as high as the amount of standard repayment and then switching it to standard (its based on 10 years from the current amount you owe… so if you change it in 2015 say then it will be a 10 year plan to pay it off by 2025. )
I just highly doubt that IBR is the only payment plan option you two could afford that would require you to have to lose the tax benefit and file seperately.
You could also consider changing your payment plan if need be to get your total payment amount down. But I do think that you’ll need to make some lifestyle choices to get the debt down. Put as much as you can extra to the lowest loan so you have the extra money each month to put toward the other ones.
Post # 15
Member
404 posts
Helper bee
@abbie017: I would say file seperately! I did that when I was married, since I have an IBR. No way can I afford my monthly payments otherwise!
Post # 16
Member
13946 posts
Honey Beekeeper
@Kate0558: Thanks for the info. When he set this up a few years ago, IBR was the cheapest, but things change. I didn’t even think to really look at changing the plans. We’ll have to play with all the numbers. Thanks! 🙂