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If i have an student loan that defaulted on but now im in…

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if i have an student...
if i have an student loan that defaulted on but now im in the rehabiliation program i paid my first apyment so what will happened if i file taxes now
Submitted: 2 years ago.Category: Tax
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1/16/2016
Tax Professional: Lev, Tax Advisor replied 2 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,305
Experience: Taxes, Immigration, Labor Relations
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two items may affect your tax return

- if you paid your student loan - a part of payments is interest. The student loan interest is deductible.

- if a part of the loan is forgiven - you should receive form 1099C reporting COD income. Let me know if that is an issue.

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Tax Professional: Lev, Tax Advisor replied 2 years ago

1.

When the debt is forgiven and it becomes obvious that it will not be paid back - that amount is classified as COD - cancellation of debt (COD) income - and it is income recognized because loans are cancelled.

In general, you must report any taxable amount of a canceled debt for which you are liable as ordinary income from the cancellation of debt, on Form 1040.

2.

In general - that is taxable income and reported on form 1040 line 21.

HOWEVER under certain conditions - you might be able to exclude COD income from taxable income.3.You MIGHT qualify for the insolvency exclusion.

When you prepare your Insolvency Worksheet - you need to determine if you were insolvent.

The worksheet may be found on page 8 in this publication -

http://www.irs.gov/pub/irs-pdf/p4681.pdf

You list all your assets and all liabilities - on the day before the loan was forgiven - so include that loan into the worksheet.

This worksheet is not sent with your tax return - just keep it for your record.

Do not send any supporting documents and do not send that Insolvency Worksheet - to the IRS - just keep for your record.

4.

That exclusion is claimed on form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.

and that form 982 should be included into her tax return.

- check the box 1(b) and list excluded amount on line 2.

Here is the form -

www.irs.gov/pub/irs-pdf/f982.pdf

Let me know if you need help to verify qualification and reporting.

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