US Student Loan Interest & the Steuererklärung

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Let me preface by saying that I've checked out the wiki and previous threads for this, and am either finding no answers, or very ambiguous ones. Here's the quick situation:

 

-I live in Germany, but still have student loans in the United States that I am paying off monthly.

-These amounts are rather high (around 5600 dollars last year), and in the US, I can declare these loan interest payments on my taxes in the form of a 1098-E form from the bank. The exact amount that I'm able to deduct (since there is a limit) seems to vary year by year, but I am always able to deduct at least some of it.

-The yearly amount I pay on this is around 10-15% of my annual income, so this is obviously going to have a major influence on my taxes owed.

-I provided my Steuerberater with the 1098-E forms as proof of these payments and their amounts.

 

My Steuerberater just prepared by Einkommenssteuererklärung for me, but seems not to have included this information under "Aufwendungen für die eigene Berufsausbildung" or under "andere außergewöhnliche Belastungen". As a result, I think the Steuererklärung provides and incomplete an incorrect picture for the Finanzamt. Also worth noting that during this time I was working as self-employed, so my Steuererklärung also factors in other cost-of-business items (rent, insurance, travel, etc.)

 

Does anyone have experience with this? I've already emailed my Steuerberater and am waiting on a response... if the payments weren't such a massive part of my yearly income I would be a little less concerned, but as it stands this will have dramatic consequences for the amount of tax I am paying.

 

Edit: and to reference my earlier search: the German tax page on the TT wiki says that student loan payments for degrees can be deducted, but other googling apparently says it cannot, or is hazy.

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The problem is that in Germany there's no tuition and therefore any loans people take were to cover their living expenses while they were studying at university. For these cases, only the interest you pay on such loans is tax deductible.

 

However, in your case you probably had to pay high tuition fees, in that case you would have to do a transparent calculation (backed by invoices from your university stating the tuition fees), how much of your loan went on tuition, e.g. 70%. Once you have proven to the Finanzamt that 70% of the money from the loan went on tuition, you can claim for 70% of capital repayment (and all of the interest, i.e. on both the tuition part and on the living expenses part). 

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14 minutes ago, PandaMunich said:

The problem is that in Germany there's no tuition and therefore any loans people take were to cover their living expenses while they were studying at university. For these cases, only the interest you pay on such loans is tax deductible.

 

However, in your case you probably had to pay high tuition fees, in that case you would have to do a transparent calculation (backed by invoices from your university stating the tuition fees), how much of your loan went on tuition, e.g. 70%. Once you have proven to the Finanzamt that 70% of the money from the loan went on tuition, you can claim for 70% of capital repayment (and all of the interest, i.e. on both the tuition part and on the living expenses part). 

 

Thanks for the quick response, Panda!

 

To your first point: the 1098-E reflects amounts in interest paid, so the 5600 I mentioned is interest on the loan.

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15 minutes ago, PandaMunich said:

Well, if that was for your first degree, i.e. for your first Bachelors degree then you can only claim for up to 6,000€ a year, see here: https://www.vlh.de/arbeiten-pendeln/ausbildung-studium/diese-ausbildungskosten-kannst-du-von-der-steuer-absetzen.html

 

If it was for a further degree, there's no limit on what you are allowed to claim for.

 

 

Many thanks for that link, the explanation helps me quite a lot. Still waiting on the Steuerberater but if necessary I'll ask him to take a look at this, since the source looks legitimate.

 

And yep, it was my first (and only) degree. Part of my rationale for working in Europe was the idea that the strength of the Euro (at the time) would make repaying this stuff easier, but the exchange rate took a pretty big blow since then.

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Just a thought, SA_Drone, but have you looked into reducing your student loan repayments through one of the income-based repayment options? They're based on your income as reported on your US tax return, which when the Foreign Earned Income Credit is applied is virtually $0. This could greatly reduce your loan payment requirements. Doesn't mean you can't pay more if you like, but would relieve you of a considerable burden in what you HAVE to pay.

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Just be careful with any of the options they give you that'll forgive loans after a certain period.  The amount forgiven is considered taxable. 

 

In any case, this is good information.  I hit a similar amount of interest last year.   Thanks for asking!

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So follow-up since apparently others are interested in this as well:

 

My Steuerberater got back to me and said yes, the interest paid on student loans is tax deductible, but the Finanzamt is very particular about it. They may or may not accept my 1098-E statements as proof that this amount is what I paid in interest and not on the principal, but he has suggested that we send in the Steuererklärung in anyway and if they come back asking for more proof or whatever, then we can deal with it then... at that point I can provide them with PDF copies of my monthly loan statements that show exactly what amounts were paid to the principal and to the interest and that back up what the 1098-E forms say.

 

Also as I think others mentioned, I also may have to verify that the loan was spent specifically for tuition. As I graduated from university in 2009 and moved to Germany in 2012, I would have to get the disbursement information from the university records office (assuming they still have it, which I think they would), or even better a complete invoice for all of my charges across all four years. But that's going to be a hell of a process to get that paperwork, so that's another reason why he said we could cross that bridge if and when we come to it. Even then I have no idea if that will actually answer their question -- the loans were disbursed directly to the university, who deducted tuition/room/board from it and gave me the remainder to pay for textbooks, so I assume the refunds would be listed on any kind of invoice they have as well.

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On 15.4.2016, 17:06:51, SA_Drone said:

So follow-up since apparently others are interested in this as well:

 

My Steuerberater got back to me and said yes, the interest paid on student loans is tax deductible, but the Finanzamt is very particular about it. They may or may not accept my 1098-E statements as proof that this amount is what I paid in interest and not on the principal, but he has suggested that we send in the Steuererklärung in anyway and if they come back asking for more proof or whatever, then we can deal with it then... at that point I can provide them with PDF copies of my monthly loan statements that show exactly what amounts were paid to the principal and to the interest and that back up what the 1098-E forms say.

 

Also as I think others mentioned, I also may have to verify that the loan was spent specifically for tuition. As I graduated from university in 2009 and moved to Germany in 2012, I would have to get the disbursement information from the university records office (assuming they still have it, which I think they would), or even better a complete invoice for all of my charges across all four years. But that's going to be a hell of a process to get that paperwork, so that's another reason why he said we could cross that bridge if and when we come to it. Even then I have no idea if that will actually answer their question -- the loans were disbursed directly to the university, who deducted tuition/room/board from it and gave me the remainder to pay for textbooks, so I assume the refunds would be listed on any kind of invoice they have as well.

Did they ever request more information? Or did they just accept the 1098-E statements? I'm in the exact same situation right now. Thanks!

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Last year my tax adviser got the Amt to accept the statements without further information.  It might vary from Amt to Amt though because at first they rejected them completely and we had to go back and forth for a bit.

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Did you categorize the loan interest as Vocational Training, or Long Term Financial Burden, or in which category?  

 

Any information on the back and forth would be great if there is something to be included that would make everyone's life easier, thank's for the post!

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@Mr.D I know its been a couple years, but did you ever find an answer to which category student loan interest falls under? Any help would be great thank you!

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