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I have about $65K in student loans. At some point I'll be

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I have about $65K in...
I have about $65K in student loans. At some point I'll be getting them discharged due to total disability, which will make them income. I'm a disabled vet, my only income is VA disability and Social Security, and I have Stage IV Small Cell Lung Cancer, prognosis terminal within a year. I don't suppose the IRS has any kind of forgiveness thing for the tax debt I'll pick up when I get the loans discharged, do they? I sure won't be able to pay it, and don't want them going after my wife, who will get the house (and makes not much more than minimum wage).
JA: When we are ready I'll take you to the appropriate web page.
Customer: And Iif my only taxable income is the $65K, standard deduction, 65+, disabled, and I file married filing seperately, about how much will the bill be? (assuming current tax structure0
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: nope
Submitted: 6 months ago.Category: Tax
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Answered in 13 minutes by:
5/10/2017
Tax Professional: Matthew Breecher, Certified Public Accountant (CPA) replied 6 months ago
Matthew Breecher
Matthew Breecher, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 286
Experience: Director
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Hello, I would like to help. Give me a minute to draft a response.

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Tax Professional: Matthew Breecher, Certified Public Accountant (CPA) replied 6 months ago

Even in community property states, student loans are not community debt. Now, student loan forgiveness is taxable in many situations. Currently, only loans forgiven through Public Service Loan Forgiveness and Student Loan Forgiveness for Teachers are exempt from being taxed.

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Tax Professional: Matthew Breecher, Certified Public Accountant (CPA) replied 6 months ago

Now, to answer one of your questions, if you had income at $65,000 less standard deductions, at the 25% bracket, you could have as much as $10,000-$12,000 in a tax liability.

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Tax Professional: Matthew Breecher, Certified Public Accountant (CPA) replied 6 months ago

To provide a more clear answer to the remainder of your situation, would you mind telling me what state you are located in?

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 6 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12,878
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My name's Lane. I am a different expert with a different answer

...

First, you may be able to use IRS Form 982 if that 1099-C ever shows up.

...

Under the insolvency exclusion you may be able to exclude some of all of the debt.

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If, on the day before the loans are forgiven, your debts (so this would be INCLUDING this debt) are more than your assets, then you can exclude the income to the extent of your insolvency.

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Lets say that this debt and any other debt (mortgages, car loans, etc) you have, total to 100,000. If the total value (and this doesn't mean your cost, but what you could sell your things for) is, say 50,000, then you can exclude 50 of the 65K of forgiven debt.

...

And on your second question, whatever must BE included is taxed at your ordinary tax rate.

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And lets say that we have a scenario where 20,000 of the debt is taxable, Given that your disability income is not taxable and that your wife's income is around 15600 (40 hour week, for 52 weeks, at the Federal Minimum wage - let me know your state, it may be higher) that would take your taxable income to 35,600.

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However the standard deduction for Married filing jointly is $12,700 and you both get a personal exemption of $4,050 ... so the first 12700 + 4050 + 4050 = 20,800 of income is not taxable.

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So in THIS example, your taxable income would be 35600 - 20800 = 14800

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And as you can see from these brackets, that puts 9325 of your income at 10% (9325 x .1 = 932)

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And the remainder of your taxable income taxable at 15% (5475 x .15 = 821)

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For a total tax (given he assumptions above) of 821 + 932 = 1753

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Let me know (1) your wife's actual wage and hours she'll work (2) any other TAXABLE income in the household, and I can run the numbers for you.

...

Lane

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 6 months ago

Again, Form 982 is the form used to apply the insolvency exclusion, and I'm attaching a worksheet that you can use to calculate that (you don't file this with the return should you get that 1099-C and need to file). You just keep for your records.

...

And again, if you'd like to give me more details about your income, assets and liabilities, I can give you a much more specific answer.

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But if this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

...

But if you need more on this, please let me know.

Lane

...

...

I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice to clients on three continents since 1986.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 6 months ago

Hi

...

I’m just checking back in to see how things are going.

...

Did my answer help?

...

Let me know if you need more here

...

Lane

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Lane
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