I qualified for disability student loan forgiveness in 2016 with monitoring ending 2019. The new tax plan says it's not considered taxable income. Will I owe taxes?

[playdough4]

Since I'd receive a 1099 in 2019 when the 3 year monitoring period is over, is that the year my loans are considered discharged and would my loans apply for the Stop Taxing Disability and Death policy? The student loan company couldn't tell me, and I'm unsure who to ask to make sure that my loans aren't going to be considered taxable income.  

[christa525]

Any further information? I'm in the same boat. Will they send us 1099s? Will it be a big headache to not have it count as taxable income? Will I need a special form or accountant?

[david-bail64]

I'm in California, and I think the forgiven debt is taxable here in the year of the discharge. Is this correct?

[MinhT · Accepted solution]

In the new tax bill, discharged debt in the event of death or total and permanent disability will no longer be taxable. The provision expires after 2025.

In your case, the debt will only be discharged after the 3-year monitoring period, i.e. in 2019. You will received a 1099-C for the discharged for tax year 2019. And you will not owe tax on that amount according the new tax bill.

[redgreengold1999]

My situation is similar. My 3 year monitoring with nelnet ends 10/2019.  In the meantime, my disability hearing with ALJ is 4/2018. Will this affect my disability discharge? Shouldn't those who were approved for permanent and total disability receiving a yearly statement?
I'm really scared I'll have to pay the tax on my loan discharge because apparently it's Earned Income, even though I haven't made a dime since 2015.

[LeeHarris1964]

I am in the same boat but I applied for my discharge in 10/2017 and my three year monitoring period ends 10/2020.  How did you come out this year on your taxes?  Did they go by the origination date that you applied or the date your three years ended?   Also, I think it depends on how your loans were discharged.  My doctor filled out a form stating that I was not able to work and would not be able to work for a indefinite amount of time.  I can make up to 16,000 a year during those three years of monitoring.  I am just worried that at the end of my monitoring period in 10/2020 that I am going to have to claim that loan amount of 70,000 on my taxes as income and will have to pay taxes.  

Can you tell me what happen in your situation. 

Thank you, 

LeeAnn

[LeeHarris1964]

I think you can see my post on the page but my discharge was approved on 10/2017, I had a dr fill out a form that I am disabled and during the three year monitoring time I can only make a certain amount of money and I have to follow other guidelines.  My three year period is up on 10/2020 so I don't know if I will have to claim it as income since my discharge date was 10/2017 but my three year monitoring period isn't over until 10/2020.  Any ideas?

[Mwagbe]

My question is, is there a form that has to be submitted with my tax return when I have qualified for the exception for the student loan discharge? I received a reduction in 2019 and am filing my 2019 taxes. From what I understand, the TPD discharge amount is not considered a cancellation of debt income but an exception ( https://www.irs.gov/taxtopics/tc431  ).  That would mean it would not /should not be reported on Form 1099-C which is a cancellation of debt form correct? Does this mean I simply do not report it? I did not receive any form from the grantor.

[VictoriaD75]

The IRS does not require reporting on certain loans discharged per their guidelines. Additionally, a 1099-C or other cancellation of debt report is not required. Review the information in the link below to determine if your discharge qualifies.

IRS Guidance on Discharged Student Loans

[bixmic]

My wife is in the same situation except, full disability determined July 2021, student loan discharged due to that full disability December 2021, and a 3 year monitoring period ending in December 2024. I understand she will fall under the same 3 year period and receive the 1099-C in 2024 and will not be considered as taxable income for federal taxes. My question is how does this all apply to Virginia state taxes. Will this count as taxable income for state even though it will not be taxable federally? For virginia is it also considered fully discharged at the end of the 3 year monitoring period?

Thank you in advance.

[Vanessa A]

Virginia only allows a subtraction  from income for student loans discharged due to death for the general public or disability of military veterans. 

If your wife is not a military vet, then her student loan discharge will be taxable in the state of Virginia. 

[bixmic]

Vanessa,

Thank you for the quick response. I have one last question, Will this be considered Viginia state income for 2021 and need to be filed this year, or will it not be considered income until the 3 year monitoring period is up in 2024 and we receive the 1099-C for filing in 2025?

Thank you again for the help.

[Vanessa A]

It is not considered income until the debt is actually discharged.