Deduct "Hidden" Student Loan Interest

If you have student loans, or parent loans, you probably know the interest is generally tax-deductible, up to a maximum of $2,500 a year depending on income. The lender (or their servicing agent) sends you a Form 1098-E telling you how much interest you paid; and as long as you meet the requirements, you can deduct this amount.

Except you might not get this form, and even if you do, it may not show the complete deductible amount! There are three areas you need to check to find "hidden" interest.

1. According to the form itself, the lender is only required to send it if you paid at least $600 in interest for the year in question. So if you're under that threshold, you may have to calculate the interest yourself, based on the various statements the lender send you throughout the year, and/or your account and payment information on the lender's website.

It gets better. Form 1098-E shows only the interest you physically paid the lender during the year. But according to the IRS rules in Publication 970, Tax Benefits for Education, you may be able to deduct more than this.

2. Loan origination fees count as interest also. Publication 970 says if it's not on Form 1098-D, "you can use any reasonable method to allocate the loan origination fees over the term of the loan." So you can't deduct it all at once, but you have to spread it out.

3. Capitalized interest is deductible as well. This is interest that adds up while you aren't making payments, and which is added to the loan balance. Once you start making payments, you can take the deduction by essentially treating the entire payment amounts as interest until all the capitalized interest is paid off. See Publication 970 for all the details of the calculation you have to use. A spreadsheet will be very helpful in tracking the numbers.

So make sure you get all the student loan interest deduction to which you're entitled.

Sector Investing Advisories, Continued

I just realized my previous post was incomplete regarding the Pitbull Sector Timing. I forgot there are actually two different offerings related to that system, requiring two different links.

First there is a trading instruction manual for a one-time price, detailing how the system works. You can then derive your own signals nightly.

Second, you can get the actual signals provided by the Pitbull people. This service also includes their nightly market commentary, along with the Pitbull Crash Index which is intended to warn if the market is headed for a serious downturn soon.

If you get the manual, it also includes six weeks of the signals and commentary, so you can see what it's like.

In the past, they stated that the continuing service, which provides the signals for you, utilized an "extra" proprietary trading decision that was not disclosed in the manual, which gave better results overall. I don't know whether that's still the case, but presumably it is. Personally, I use the service.

I also should have mentioned that even though signals could occur on any night, the system actually trades very infrequently. Generally it stays in one sector fund for several months. Once they didn't have any switches for nearly two years. So this is a very "relaxed" system and not for the person whose trading finger itches all the time.

Lastly, they have a six-month satisfaction guarantee.

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Edited 6/23/2009: The Pitbull Sector Timing has been replaced by their ETF Timing. I have changed the links above to display the ETF information.

Sector Investing Advisories

Sorry for the long delay between posts -- the holidays are such a busy time, and I've also had some travel to deal with.

Last time I promised to talk about sector investing advisories, and here they are.

Two such services I've used with success (and continue to use) are Good Fortune, which sports an average 20.45% per year gain since 1990 (you can see yearly statistics on their site), and Pitbull Sector Timing. The latter's web site is a little unusual, but try not to be put off by it. Here is the recent track record they report:

2001 .... +76.5%
2002 .... +3.1%
2003 .... +11.7%
2004-05 .... +12.5%
2006-07 .... +13.9%

Do you know anyone else who made 76% profit in mutual funds during the terrible year of 2001? Neither do I.

Pitbull offers several different systems and advisory services, and the Sector Timing is just one of them. It's definitely worth a look, and the service also includes a nightly market commentary.

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Edited 6/23/2009: The Pitbull Sector Timing has been replaced by their ETF Timing. I have changed the link above to display the ETF information.