This summer the State of Michigan had some issues with the IRS built up since the 1980s. As a result they had two options - either cut a check to the IRS or cancel some student loans. They chose to do the latter and, as a result I received 5 1099-Cs totaling $17,325 (Box 2) in cancellation and $1,305 in interest (Box 3). Box 6, the Identifiable Event Code on all of them was "C".
I entered this into Turbo Tax which resulted in a "tax bomb" turning my $1000 refund into a $2,850 tax bill and my Michigan $20 refund into a $716 tax bill. All Turbo Tax let me enter in were the sums of Boxes 2 & 3, nothing else. Nor was there any way to indicate this is was student debt either.
While trying to figure out this situation, I read that the COVID-19 relief package passed in March of last year, the one that resulted in a third $1,400 payment to taxpayers also made student loan forgiveness tax-free through 2025. Since this is at odds with what Turbo Tax is telling me, definitely need some help. I definitely do not want that tax bomb to go off.
