Do you have a student loan that was recently discharged? If so, you may be eligible for tax relief on the value of the forgiven funds based on new guidance issued by the Internal Revenue Service (IRS). Read on to see if you qualify for these tax savings.
Typically, the discharge of a federal or private student loan that is used to finance attendance at a nonprofit or for-profit school is treated as a taxable event. This is because the cancellation of debt is generally treated as income to the debtor by the IRS. This requirement has recently been lifted by the IRS for certain situations meaning that affected students will not have to report the amount of the discharged loan or pay tax on the income. This tax break applies to students who:
The IRS is also extending this tax relief is to any creditor that would be required to file information returns and provide statements to any affected students. The IRS is strongly recommending that creditors do not provide students (nor the IRS) with a Cancellation of Debt form (Form 1099-C).
This new tax guidance on discharged student loans comes just in time for tax season. Since the guidance is effective for loans discharged in 2016 and later, if you are eligible for this tax relief you may also be eligible to claim refunds for overpayment of tax on any previous year’s return. If you are uncertain about your status under this new IRS regulation, check with a tax professional as you prepare to file your 2019 taxes.
Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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