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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10454
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I cosigned on a student loan. The borrower passed away and

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I cosigned on a student loan. The borrower passed away and I was able to get loan forgiven by bank. However they are claiming a loss to irs of over 600. They said I should ask a tax advisor how it could affect me financially. Im not sure I understand

NPVAdvisor :

Hi,

NPVAdvisor :

What they're getting at is the fact that forgiven debt is taxable

Customer:

Okay so if the loan was 35000 how taxable is it

NPVAdvisor :

IRS sees that as a net increase in wealth (you guaranteed the payback of the dollars and it was not repaid) ... HOWEVER, the amount that is forgiven is ONLY added to your other income and taxed, the amunt of the tax DOES NOT equal what was forgiven

NPVAdvisor :

Depends on your tax bracket

NPVAdvisor :

If, for example...

NPVAdvisor :

you are in the 25% bracket, then it will be added to your other income and taed at 25% ... $8750 (inn that example)

NPVAdvisor :

(sorry fro the typos)

NPVAdvisor :

Do you file as married filing jointly o single? (I can pull the brackets for you)

Customer:

Single

NPVAdvisor :

k. just a sec

NPVAdvisor :


  • 10% on taxable income from $0 to $8,925, plus

  • 15% on taxable income over $8,925 to $36,250, plus

  • 25% on taxable income over $36,250 to $87,850, plus

  • 28% on taxable income over $87,850 to $183,250, plus

  • 33% on taxable income over $183,250 to $398,350, plus

  • 35% on taxable income over $398,350 to $400,000, plus

Customer:

Ok id be 25%

NPVAdvisor :

K, then that is the worst case

NPVAdvisor :

There will be nothintg to report unless they actually give you a 1`099

NPVAdvisor :

THey COULD be trying to scare you ... is this a Private student loan?

Customer:

They mentioned that I should probably file one but not sire if anyone will send me one

Customer:

It was a school loan through wells fargo

NPVAdvisor :

it is THEIR responsibility to send the 1099 (and that's when the IRS will get a copy)

Customer:

Ok so once they report it im screwed basically?

NPVAdvisor :

Sounds like it probably WAS a private, rather than a federally subsidized loan

NPVAdvisor :

(1) I would certainly wait to see if they send one ... (2)You may also want to make an offer (that would be than the tax owed, sometimes they'll take an offer in compromise (where they give you a paid in full letter as part of the settlement) (3) In the mean time, read the loan agreement (they have to provide one) to be sure that your ARE responsible in the event of death

Customer:

Ok thank you

NPVAdvisor :

(4) If they actually do send a 1099, you won't have tp pay until the following April, you can set up an installment agreement with IOTS to pay it over time (you can do it online if the taxes owed are less that 50,000

NPVAdvisor :

Again, DO look at that loan agreement, sometimes there are clauses that allow for different things to happen in the event of death, make them send you that 1099 frst

Customer:

Ok appreciate it thank you

NPVAdvisor :

The terms of many student loans provide that the indebtedness is discharged upon the death of the borrower. However, you really should check the copies of the original loan documents.

Lane and 2 other Tax Specialists are ready to help you


Thanks Christina,

As a follow-up, see this

http://ask.metafilter.com/156030/Repurcussions-of-cosigning-a-student-loan-when-the-borrower-dies

Thanks again,
Lane