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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N_Br0wnAuthor

Level 2

The information you’ve suggested is wrong. Now, if I choose to use TurboTax for my filing (which I’ve done in the past), your software is not up to date with current laws and will make me pay for the student loan which is considered non-taxable by both federal and state government for me, according to the ARPA. So how do I get around that?

HowardSinger

Level 2

Brittany and I may be saying the same thing and situations can be different.

According to this IRS publication, Code G means:

Code G—Decision or policy to discontinue collection. Code G is used to identify cancellation of debt as a result of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. For purposes of this identifiable event, a defined policy includes both a written policy and the creditor's established business practice.

This typically would not be part of the American Rescue Plan.

For your specific situation, I think you need to contact Discover to confirm one way or another what the terms of the cancellation were. You need to know if the cancelation was part of the American Rescue Plan or a type of discharge that would require it to be reported as taxable income.

@N_Br0wn

Where does it say that that reason is excluded from ARPA? It’s just giving a reason why the debt was cancelled but does not say it excludes that debt from ARPA.