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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 2185
Experience:  IRS licensed Enrolled Agent and tax instructor
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Under certain federal government student loan repayment plans,

Customer Question

Under certain federal government student loan repayment plans, the terms of the loan are extended for 20-25 years with any remaining balance due and owing at the end forgiven. Would these student loans be eligible for Federal Form 982 treatment, i.e. an exception to treating forgiven debt as taxable income.
Submitted: 6 months ago.
Category: Tax
Expert:  emc011075 replied 6 months ago.
Hi. My name is ***** ***** I will be happy to help you. There's no 982 exception for student loans but the canceled debt can be excluded from your income if you are insolvent, meaning your debts were higher than your asset. You will have to use insolvency worksheet to figure it out.
Customer: replied 6 months ago.
Well I don't plan on being insolvent lol. I am actually a consumer law atty and am doing pretty well right now, but it's not conceivable for me to pay what they was. My loan balance is 222,000 (which goes up a little each month as I am not covering my interest even on my monthly payments) and that doesn't include the private loans at 60k (which I amazingly and paying off at 300 a month with the interest cut off). Can I see a copy of the insolvency sheet...If I had savings or an Iraqi or 401k would the government seek to it for the taxes on the debt forgiveness...would I have the opportunity to enter into a payment plan. I mean the debt forgiveness could and likely would be in the six figures which would tack on a minimum 39,000 at the highest tax rate no? You earned your fee btw...I will tackle on an extra 50 if possible if you can answer these questions as well. Thanks
Customer: replied 6 months ago.
The autocorrect here has killed me lol...can we set up a call...
Expert:  emc011075 replied 6 months ago.
I fully understand. Student loans are killing many people. The way it works is when Government or other financial institution forgive you a loan, it is considered income to you. So instead of paying 280K to financial institutions you will end up with one huge tax bill (your regular tax bill will increase by about 30% of the forgiven debt). If you can proof that at the time of the forgiveness you were insolvent you can exclude some or all of the forgiven debt from the income. IRS will not take anything from you at this point, it is not a levy. Insolvency is only to prove that you are in not position to pay off your obligations. Here's IRS version of the worksheet: will not have to file it with your return but in case IRS ask you will need to provide it and be able to document what you claimed on it.Once you calculate your tax liability and you cannot pay it all, you can request installment agreement. Last resort would be offer in compromise (you offer IRS what you think you can reasonably pay and ask your tax debt to be reduced).

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