Pay off loans this year or at beginning of next year?

[Chard]

I am fortunate enough to be in the position to pay off all of my med school loans with a lump sum payment right now. From a tax standpoint, is there any advantage to paying it all off before the year ends vs. at the beginning of next year (prior to the end of the 0% interest)? I am a first year resident and did not have a salary prior to about June. No other debts. Single, no kids. Maxing retirement accounts.

Please do not tell me to put the money in other investments or something else. There are a lot of factors in my choice to pay off my loans now and the decision has been made. Thanks in advance.

[JBME]

All I can think of is can you tell us how you came into this money, because that might have tax implications for this year vs next

[Tangler]

Congratulations on your situation! Outstanding!

I finished residency with 300k of loans consolidated at 6% and I had to work extra calls/weekends to pay off that mess.

The WCI had yet to write his blog and books and I was just happy to no longer be a resident/fellow, but I quickly figured out that I was in a financial mess.

I had a much lower net worth than the dude living under the highway. His net worth was zero. I was >200k below zero.

Anyway, you are about to be debt free!

Having it done as a first year resident is amazing.

You have either been lucky or good or both and you should be thankful!

OK, as for what to do, I don't think it matters.

You don't have much income as a resident so you won't have much in the way of taxes regardless, but I am not a CPA.

I would just pay if off and focus on being a good doc and getting a good job.

Welcome to the forum.

[VentAlarm]

Today. Congrats. Welcome.

[Andrew StudentLoanAdvice]

No difference. Be done with these. Congrats.

[Tim]

https://www.irs.gov/taxtopics/tc456

Student loans have 2 components:
principal and interest.
$2500 of interest is an adjustment to income in the year paid.
I suggest you explore the possibility of splitting the application of the payment to maximize the deduction.
$2500 in 2021 and $2500 in 2022. The moratorium simply stopped the accruals.
Depends on your loan specifics for the accrued interest. If the payments are interest first, I would pay $2500 in 2021 and the payoff the rest in 2022.

There is a potential of tax savings.

[NumberWhizMD]

https://www.irs.gov/taxtopics/tc456

Student loans have 2 components:
principal and interest.
$2500 of interest is an adjustment to income in the year paid.
I suggest you explore the possibility of splitting the application of the payment to maximize the deduction.
$2500 in 2021 and $2500 in 2022. The moratorium simply stopped the accruals.
Depends on your loan specifics for the accrued interest. If the payments are interest first, I would pay $2500 in 2021 and the payoff the rest in 2022.

There is a potential of tax savings.

This only works based on income. There was never a point with my student loans that we were able to have this deduction due to income. If the income is less than the threshold, I would agree!

[Tim]

Yes, it is based upon income and then you have standard deductions and I have no clue whether you have any tax liability at all.
Additionally, the $2.500 reduction will amount to very small tax savings as well. The question was it paying in 2021 vs 2022 have any potential tax advantages.
Possibly, but limited.