Student Debt Forgiveness Taxable?

[Snaggletooth]

Without turning this into a political opinion about Student Debt Forgiveness, a general rule about Debt Forgiveness is that it gives rise to Taxable Income.

Especially if the debt was incurred concomitant with deductions. And student debt, when it was incurred, in most cases gave rise to credits, such as American Opportunity Credit or Lifetime Learning Credit. To determine the varying tax credits coming with the student debt would be a witch's nightmare.

Would forgiveness of student debt give rise to a 1099-E from the lending agency? Of course, the lending agency would not lose any money, it would simply be reimbursed by a slug of government money. And the political reality of taxing citizens on student debt relief would dictate that this would not happen. Imagine, the joyful glee of those who didn't have to pay their debt would be displaced by sour grapes if they were later notified they would have to pay tax on the forgiveness.

[New York Enrolled Agent]

Would forgiveness of student debt give rise to a 1099-E from the lending agency? .

it depends. For example, see IRC 108(f)(1).

[Rapid Robert]

"Especially if the debt was incurred concomitant with deductions."

Can you please provide a cite for this claim?

"Without turning this into a political opinion about Student Debt Forgiveness,"

I think you managed to give us your political opinion anyway.

"Would forgiveness of student debt give rise to a 1099-E from the lending agency?"

What is form 1099-E? Never heard of it, coudn't find it.

"For example, see IRC 108(f)(1)."

What about 108(f)(5)? seems to apply directly here.

[Snaggletooth]

it depends. For example, see IRC 108(f)(1).

Thank you for the cite, NYEA. From the cite it appears the forgiveness would be tax exempt if it was discharged because the borrower worked in certain occupations which allowed forgiveness.

Without politically supporting or rejecting the idea of student loan forgiveness, it simply doesn't make sense to tax the forgiveness from a political standpoint. If a taxpayer owed $80,000, adding this to his income in 2024 would create a worse problem for him than having to pay on it. This would cause more votes to be lost than gained.

[Rapid Robert]

"Without politically supporting or rejecting the idea of student loan forgiveness,"

But nevertheless you made your feeling known. "a slug of government money. [...] Imagine, the joyful glee [...] sour grapes [...] cause more votes to be lost than gained" -- these are not objective statements about tax law.

You also posted unsupported claims about tax law, referred to non-existent tax forms, and somehow it seems all you are trying to do is retroactively come up with a justification for existing tax law, IRC 108(f)(5).

[jmcdtax]

Lending firms that cancel student debt are not required to send out 1099-C and are told not to, Cancelation is not reported to the IRS. States like Wisconsin do tax student loan forgiveness. If there is no 1099-C and it's not on 1040, I am not sure how the state would know if the taxpayer did not report it. But as preparers, we should inform the taxpayer of their obligation to report the cancellation to the state.

[Snaggletooth]

But nevertheless you made your feeling known. "a slug of government money. [...] Imagine, the joyful glee [...] sour grapes [...] cause more votes to be lost than gained" -- these are not objective statements about tax law.

You also posted unsupported claims about tax law, referred to non-existent tax forms, and somehow it seems all you are trying to do is retroactively come up with a justification for existing tax law, IRC 108(f)(5).

Thank you RR for that rousing vote of support, and adding so much to the explanatory information addressing the original question. - Snag.

[Rapid Robert]

"States like Wisconsin do tax student loan forgiveness."

California passed a law similar to, or maybe identical conformity, to IRC 108(f)(5).