Generally speaking, you may be able to deduct up to $2,500 of the interest you paid on your student loans in 2005. The $2,500 is a cap on what you can deduct, so, even if you paid more, you will be able to deduct at most $2,500. This deduction will help reduce your taxable income, shrinking the amount of tax you will owe (or increasing your refund) come April 15th.

As with all things tax-related there are a few requirements to be eligible for this deduction.

First and foremost, the amount of the deduction is gradually reduced and then eliminated based on your income. If you are single, the deduction is reduced between $50,000 and $65,000, and completely eliminated if your income exceeds $65,000. In other words, if you make less than $50,000 you can deduct up to the full $2,500 (assuming you paid that much or more in student loan interest in 2005). If you income falls in between $50,000 and $65,000 you will be able to deduct less than $2,500 (the reduction is proportionate to the higher your income falls in that range) and if your income exceeds $65,000 you won't be able to deduct any student loan interest. The income phase-out range for married couples filing jointly is $105,000 to $135,000, and married couple must file jointly (rather than separately) to be eligible.

Here are a few more things to be aware of:

• You don't have to itemize deductions to qualify, but it's not available if you use Form 1040EZ to file your return. To be able to use the deduction, you have to file either Form 1040A (line 18) (see the Form 1040A instructions or Form 1040 (line 33) (see the Form 1040 instructions).
• The loan must have been to pay for real school expenses i.e. tuition, room and board, and books and supplies (transportation to school counts also).
• You need to have been enrolled in an eligible school (generally all accredited public, private and for-profit postsecondary schools) at least half time at the time you took out the loan.
• You can't deduct interest on a loan you received from a relative.
• You can include loan origination fees (a one time fee charged by the lender at the time of the loan) in the amount deducted.