How would student loan forgiveness affect my taxes?

How would student loan forgiveness affect my taxes?

by James J. Newhard, CPA | Oct 18, 2017

Due to its unique character, student loans may receive special treatment apart from other forms of indebtedness.

Cancellation of debt is generally treated as income, per IRC Section 108, unless certain extreme exceptions apply (such as insolvency by the indebted taxpayer). However, the recipient of a student loan debt cancellation would not have to include the discharged debt in income if the loan contained a provision that the debt will be cancelled if the recipient works for a certain period of time in certain professions for a broad class of employers. Also, effective for years after Jan. 1, 2015, federal student loans discharged under either the Department of Education’s closed school discharge or the defense to repayment process may be excluded from cancellation of debt income.

If the taxpayer does not meet the above circumstances, then cancelled student loan debt will be includable in income, subject to qualified exceptions (including certain bankruptcy filings) in the Internal Revenue Code.

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Answered by: James J. Newhard, CPA, is the owner of James J. Newhard CPA in Paoli, Pa.
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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