Introduction
Hey readers,
Have you been wondering if you can wave student loan forgiveness on your 2018 taxes? You’re not alone. Many people have questions about the tax implications of student loan forgiveness. In this article, we’ll take a closer look at the rules and help you understand what you need to know.
What Qualifies for Student Loan Forgiveness?
Not all student loans are eligible for forgiveness. In general, only federal student loans qualify. Private student loans are not eligible. Additionally, there are several different student loan forgiveness programs available, each with its own eligibility requirements.
Common Student Loan Forgiveness Programs
- Public Service Loan Forgiveness: This program forgives the remaining balance on your student loans after you make 120 qualifying payments while working full-time in a public service job.
- Teacher Loan Forgiveness: This program forgives up to $17,500 in student loans for teachers who work in low-income schools for five consecutive years.
- Income-Driven Repayment Plans: These plans base your monthly student loan payments on your income and family size. If you make payments under an income-driven plan for 20 or 25 years, the remaining balance on your loans may be forgiven.
Student Loan Forgiveness and Taxes
When your student loans are forgiven, the amount that is forgiven is considered taxable income. This means that you will need to pay taxes on the forgiven amount. The tax rate that you pay will depend on your income and filing status.
Exceptions to the Taxability of Student Loan Forgiveness
There are a few exceptions to the rule that forgiven student loans are taxable income. These exceptions include:
- Discharge due to disability: If your student loans are discharged due to a disability, the forgiven amount is not taxable.
- Discharge in bankruptcy: If your student loans are discharged in bankruptcy, the forgiven amount is not taxable.
- Death: If you die before your student loans are paid off, the forgiven amount is not taxable.
How to Avoid Paying Taxes on Student Loan Forgiveness
There are a few things you can do to avoid paying taxes on student loan forgiveness. These include:
Repaying Your Loans Before They Are Forgiven
If you can afford to repay your student loans before they are forgiven, you can avoid paying taxes on the forgiven amount. This is the best way to avoid the tax liability.
Refinancing Your Loans
If you refinance your student loans into a private loan, the forgiven amount will not be taxable. However, you will lose the benefits of federal student loans, such as income-driven repayment plans and loan forgiveness programs.
Declaring Insolvency
If you are insolvent, you may be able to exclude the forgiven amount from your income. Insolvency means that you have more debts than assets.
Table: Taxability of Student Loan Forgiveness
Situation | Taxable |
---|---|
Discharge due to disability | No |
Discharge in bankruptcy | No |
Death | No |
Forgiveness under Public Service Loan Forgiveness | Yes |
Forgiveness under Teacher Loan Forgiveness | Yes |
Forgiveness under income-driven repayment plans | Yes |
Conclusion
We hope this article has helped you understand the tax implications of student loan forgiveness. If you have any further questions, please consult with a tax professional.
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FAQ about Student Loan Forgiveness on 2018 Taxes
Can I claim student loan forgiveness on my 2018 taxes?
No, student loan forgiveness is not taxable income and cannot be claimed on your 2018 taxes.
What is student loan forgiveness?
Student loan forgiveness is a government program that discharges (cancels) all or part of your federal student loans.
What types of student loans qualify for forgiveness?
Federal student loans, such as Direct Loans, Stafford Loans, and PLUS Loans, are eligible for forgiveness. Private student loans do not qualify.
How can I apply for student loan forgiveness?
There are various student loan forgiveness programs, each with its own eligibility requirements and application process. You can visit the Federal Student Aid website for more information.
When is student loan forgiveness taxed?
Student loan forgiveness is generally not taxable, but there are some exceptions. Forgiveness under certain programs, such as the Public Service Loan Forgiveness Program, may be partially taxable.
How do I report student loan forgiveness on my taxes?
If you received student loan forgiveness that is taxable, you will receive a Form 1099-C from the loan servicer. Report the taxable amount on your tax return as income.
Who should I contact if I have questions about student loan forgiveness and taxes?
You can contact the Internal Revenue Service (IRS) or a tax professional for guidance on how to handle student loan forgiveness on your taxes.
Are there any deadlines for claiming student loan forgiveness on taxes?
No, there are no deadlines to claim student loan forgiveness on taxes. However, you should report taxable forgiveness accurately on the year it was received.
What if I received student loan forgiveness before 2018?
Student loan forgiveness received before 2018 is also not taxable. It should not be reported on your 2018 or previous tax returns.
If I expect to receive student loan forgiveness in the future, what should I do?
If you anticipate receiving student loan forgiveness in the future, track the amount forgiven and consult with a tax professional to determine if any portion is taxable.