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taxpayer paid student loan interest in canada. Can she deduct in U.S.?

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Taxpayer took out a personal loan from RBC Royal Bank to pay tuition to Harvard Univerity.  Apparently, RBC does not report the interest paid on the loan.  Is there a way to deduct on Federal return?

 

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Level 6

Was it a personal loan or a private student loan?

 

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Level 10

Definitions  For purposes of this section [Code  Section 221]—


(1)Qualified education loan   The term “qualified education loan” means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses—


(A)which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred,


(B)which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and


(C)which are attributable to education furnished during a period during which the recipient was an eligible student.


Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term “qualified education loan” shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72(p)(4)) or under any contract referred to in section 72(p)(5).

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Level 15

You said "personal loan".  If it was not taken out as an "education loan", which some banks extend, your client may have a hard time proving that it is an "indebtedness incurred by a taxpayer solely to pay qualified higher education expenses" and it meets all the conditions defined under §1.221-1(e)(3).

There's no requirement that the institution extending the loan has to be in the US.  So long as the loan meets the definitions for Qualified Education Loan, the interest should be deductible provided the other conditions are met as the deduction is not conditioned upon the issuance of 1098-E.

Having said that, your client should have formally declared himself/herself as a US person and submitted a W-9S.  If you decide to take the deduction, your client should ensure there is sufficient documentation for substantiation and be prepared that there might be push back from the IRS (and let's forget about ECI and withholding requirements on RBC, etc. for the moment).

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A fine is a tax for doing wrong. A tax is a fine for doing well.
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Level 10

I don't see anything that says she's a Canadian.  Obviously, she has US income.  Maybe dual citizenship, and Dad works for the bank in Toronto.  The regulations just regurgitate the Code (which is often the case).  You can underline and highlight solely, but if she borrowed $25,000 on Wednesday and sent a check for that amount to Harvard on Friday, I don't see a problem.  

What's a "personal loan," anyway?  Is there a Code definition?  Aren't all student loans also personal loans?  I think the kid is saying "personal loan" because RBC has "student loans" that can be used only at Canadian schools by Canadian citizens or residents.  

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Level 15

I never said the taxpayer is a Canadian, did I?

I also didn't say "solely" is a problem but it should be emphasized because the burden of proof will be on the taxpayer.

Did I say personal loan does not qualify?  Educational loans (and that's available in various countries) would clearly be much easier to substantiate with the IRS.  I never stated personal loans will not qualify but referred to the Treas. Reg. for definition of qualified educational loan.

You may like to re-read the response.  Enough said.

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A fine is a tax for doing wrong. A tax is a fine for doing well.
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She said personal loan and told me that Canada does not have same system as we do in U.S.  Not sure the banks lend $ specifically for Eduation purposes and so I will ask her more detailed questions.

She has proof that she paid interest on the loan that she used to pay for Tuition but of course Bank does not produce 1098E and so I figure IRS will ask for proof.   Will deduct and then provide proof if IRS asks.

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Level 10

IRS has more problems to worry about these days than a deduction that at most is saving her $600 or so.  I've never heard of them matching a return to a lack of 1098-E, but anything is possible.  Just make sure you are dealing with US dollars, not Canadian.  

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thanks to all.  I am deducting student loan interest and informing client that she be prepared to 

back up her deduction.  And I have seen the backup.