Relief from Student Loan Debt: What Are the Tax Implications?

August 01, 2017


Relief from Student Loan Debt: What Are the Tax Implications? | Gerson Preston

Today’s college students often leave school with an overwhelming amount of debt. In some cases, student loans are discharged (also known as being cancelled or forgiven). In other cases, these loans are paid off by an employer. Both actions have tax consequences for the student loan borrowers. We’ll explain the tax implications, but first, let’s cover some necessary background information.

Cancellation of Debt Tax Basics

For federal income tax purposes, the general rule is that a taxpayer’s gross income includes any cancellation of debt (COD) income — unless one of several tax-law exceptions applies. The availability of exceptions (found in Section 108 of the Internal Revenue Code) depends on various factors such as the use of the loan proceeds and the borrower’s financial condition at the time the “COD event” occurs

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