I am married & was on OPT till sep 09 & from Oct 1 H1B. I don't pass substaitial presence test. Since I am from India, I can claim personal exemption for my spouse as well as standard deduction. But I was not give student loan deduction. IRS said that my status is married filing separately, where as there is no such option of married filing jointly or separately in 1040NR. Help.. How can I claim student loan deduction also?

Choice 1: You can file non-resident tax return and Form 8843. If you did not complete 5 years on F-1, you can not file as married filing separately.

Choice 2: You can file resident tax return as Married Filing Jointly. You will have to wait for 5 months to file your tax return till you meet the Substantial Presence Test (of 183 days) in 2010. Your U.S. Tax Return: Substantial Presence Test (http://taxipay.blogspot.com/2008/04/substantial-presence-test.html)
You will get standard deduction of $11,400 and exemptions ($3,650 each) for both of you.
You must both declare your worldwide income for 2009. If you have any foreign income, and on that income you paid taxes in the foreign country, then you can claim foreign tax credit (Form 1116) or you can use Foreign Earned Income Exclusion (Form 2555). Your U.S. Tax Return: U.S. Citizen or Resident with Foreign Income (http://taxipay.blogspot.com/2008/03/us-citizen-or-resident-with-foreign.html)

You will complete forms W7 (application for ITIN) for your spouseand attach with your tax return.