1099-C from Discover Student Loans

Forum|Forum|1 year ago
February 4, 2025
1 reply
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Hi, everyone.

I received a 1099-C from Discover Student Loans. I panicked at first, and tried to figure out how I can claim insolvency since I certainly wouldn't be able to pay the taxes on the 1099-C. After much research, I noticed that Discover Student Loans closed their student loans department and cancelled most of their student loans.

I was already in default with the loan. The 1099-C I received has Code G on it (Code G is: cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt). I also read that under the American Rescue Plan, student loans cancelled between January 2021 and December 31, 2025 are exempt from federal income taxes (unsure of state taxes, so still researching; I'm in NY).

My questions are:

What do I do with this? Do I file this?
Do I still have to prove insolvency? What do I submit to prove insolvency?
Can I still file online?

Vanessa A

Level 15

The American Rescue Plan does not apply to student loans that were discharged due to being in default. The loans that is does apply to, according to the IRS, the borrowers will not received a 1099-C if it is not a taxable event.

1) Yes, You will need to include this on your tax return unless you qualify as being insolvent as this does not fall under the American Rescue Plan Act.

If you had a student loan that was discharged after December 31, 2020, and the amount of the discharged loan is nontaxable, you won’t receive a Form 1099-C from the lender or servicer of your student loan.

2) You would fill out this insolvency worksheet to determine if you are insolvent. If you are claiming insolvency, this is not a situation that TurboTax handles, so it is recommended that you contact a professional.

To qualify, you must demonstrate that your total debt exceeded the fair market value of all of your assets immediately before the cancelation occurred.

3) No, you would not be able to file online (at least through TurboTax) if you are claiming insolvency as you would need to attach unsupported forms to your return.

"How to report the insolvency exclusion. To show that you are excluding canceled debt from income under the insolvency exclusion, attach Form 982 to your federal income tax return and check the box on line 1b. On line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately before the cancellation. You can use the Insolvency Worksheet to help calculate the extent that you were insolvent immediately before the cancellation. You must also reduce your tax attributes in Part II of Form 982, as explained under Reduction of Tax Attributes, later". Pub 4681

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LindseyS12

Level 2

Hi Vanessa,

Where does it state that any private loans that were previously defaulted but discharged (due to student loan company going out of business) - do not qualify for tax exemption? I am reading that all private student loans regardless of reason for discharge qualify.

Thank you,

Lindsey

HowardSinger

Level 2

Yeah I don’t think Vanessa knows what they’re talking about because there is literally nothing in the legislation that excludes discharged defaulted loans from tax exemption. It says ALL student loans are exempt.