Can I write off a 1099-C that I received while in the military's loan forgiveness program?

by Nicole T. Buckman, CPA | Feb 27, 2018

I received a 1099-C for $40,000. I am in the military using the public service loan forgiveness program to pay off my student loans (total is $70,000). This is my third year into the program. This 1099-C came from student loan debt that had just timed out (so to speak). I am facing a large tax bill that I can't afford. Can I write this down or off? Please advise.

The cancellation of debt or reduction of a loan is considered income, and therefore it is taxable. They are writing off your debt so to speak, so you cannot write this off. However, the benefit of the reduction of a large loan ($40,000) far outweighs the taxes owed (approximately $4,000-$6,000). My advice would be to go on a payment plan or to see if you qualify for an “offer in compromise.” Payment plans can be short term (120 days or less) or long term (120 days or more). Short-term plans have a free application, and you can set it up via phone, mail, or in person. Keep in mind the payment isn’t owed until April 17 (April 15 falls on a weekend and we have a recognized tax holiday). Therefore, I would save as much as possible between now and April to see if you can minimize the payment plan option (they still accrue interest and penalties until the balance is paid in full).  You can find more information about payment plan options and an on-line application on the IRS website.

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Answered by: Nicole T. Buckman, CPA, is with Jones Kohanski & Co. PC in Moosic, 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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