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Cancelled debt CPA discusses Tax Consequences of Student Loan Forgiveness, Cancellation and Discharge | Insolvency on Form 982 and Form 1099-C | Form 1099-C instructions | Form 982 instructions

Cancelled debt CPA. Form 982 CPA. Form 1099-C CPA. Form 982 instructions. Form 1099-C instructions.

Many Folks don’t realize cancelled student loan debt becomes taxable income, unless you can exclude it through the insolvency exclusion of Form 982, Reduction of Tax Attributes. So they eventually receive an IRS  CP2000. Ouch. For a free consult with an experienced cancelled debt CPA call me; (910) 399-2705.

Hi, I’m a Form 1099-C CPA discussing student loan cancelled debt issues; current tax consequences, future tax consequences and tax reporting rules. Other common terms for student loan cancelled debt include student loan forgiveness, student loan cancellation and student loan discharge. The obligation to pay back the student loan disappears, usually, when the taxpayer becomes disabled. The certification process for disability is a long, stressful process, but when you actually receive permanent disability certification the student loan discharge is straightforward. Except for the tax consequences.

Generally the lender issues a Form 1099-C, Cancellation of Debt. So the IRS tries to land right uppercut. The amount of student loan forgiveness appears in Box 2 of Form 1099-C and automatically becomes taxable income unless we can exclude it through the insolvency exclusion of Form 982. Note – this may not discharge all the student loan. Note there could be future tax consequences (please read the reduction of tax attributes section of IRS Publication 4681). I’ll cover sources of cancelled student loan debt information as well, like the Form 982 instructions. Note the Form 1099-C instructions are for the bank.

Statistically you have a good chance of avoiding the student loan tax obligation. My opinion is that disabled Folks become financially devastated, which in the IRS universe we’re discussing, is a good thing – go figure. Why, because your Form 982 at the time of the student loan discharge uses insolvency as a defense.

Student loan cancellation amount (in Box 2 of Form 1099-C) becomes taxable income on Line 21 of Form 1040 unless you can exclude it through the insolvency provision of Form 982, Reduction of Tax Attributes. How much tax does that generate? Maybe 25-35% of the amount in Box 2 of Form 1099-C; as a rule of thumb. Under certain conditions your student loan cancelled debt isn’t taxable and qualifies for  an exception to the insolvency provision of Form 982, Reduction of Tax Attributes. But in my experience, if you receive a Form 1099-C for student loan discharge, it’s automatically taxable.

I’m not discussing student loan forbearance or deferment. Modifying the terms of loan shouldn’t trigger cancelled debt income.

“Some Folks get confused about taxable income and the actual amount of tax that’s due. The amount of tax due on your taxable income depends on your marginal tax bracket, the number of exemptions you take, how much income is capital gains, etc.”
– Gary Bode, cancelled debt CPA.

How to Battle a Form 1099-C for a discharged student loan: tax reporting rules for cancelled student loan debt

Insolvency for Form 982 purposes is a financial snapshot just before the loans were cancelled. The IRS insolvency worksheet is in IRS Publication 4681. Don’t bother with the Form 982 instructions. Publication 4681 is better at explaining Form 982 than the Form 982 instructions are.

  • Be aware that Form 982 may not be a free ride.
    • Look at the Reduction of Tax Attributes section in Publication 4681.
    • While Reduction of Tax Attributes won’t affect the current return, you may have future tax consequences and you should understand how that can manifest itself.
  • The only way to exclude student loan cancellation from taxable income is through the Insolvency exclusion of Form 982, Reduction of Tax Attributes.
    • Some student is dischargeable by working in underserved geographical areas and those Folks usually don’t receive Form 1099-C, Cancellation of Debt.
    • If that’s you, and you still receive a Form 1099-C,  we can help you straighten that out with the IRS.
  • Calculate your Insolvency using the IRS Insolvency Worksheet.
    • If your IRS Insolvency is equal or greater than the student loan forgiveness listed on 1099-C, you enter the dollar amount listed Form 982.
      • Complete Form 982 and attach it to your tax return.
      • Remember to reduce your tax attributes if required.
        • With any type of cancelled debt there’s always a chance of future tax consequences. But note that seldom applies to student loan cancelled debt.
        • If your IRS Insolvency is less than the student loan discharge you only exclude the amount of insolvency shown in the IRS Insolvency Worksheet.
          • The insolvency part flows to Form 982 and isn’t directly taxable. If you’re only partly insolvent, the remainder of the amount listed on Form 1099-C flows to Line 21 of Form 1040 and becomes taxable income.
        • Here’s what goes in Line 21 of Form 1040:
          • The amount in Box 2 of Form 982, Cancellation of Debt, minus the IRS Insolvency amount from the worksheet.
    • If your IRS insolvency is $0 or less than $0, all the cancelled student loan debt in Box 2 of Form 1099-C is taxable and flows to Line 21 of Form 1040.

Sources of help for cancelled student loan tax reporting

  • Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. I think most Form 1099-C CPAs would agree this publication is the real Form 982 instructions, Reduction of Tax Attributes.
  • Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments, contains the IRS insolvency worksheet.
  • The IRS. Remember you can’t use oral advice from the IRS as a defense against an inaccurate tax return. And they’ve drastically cut down on customer service for 2018.
    • In 2016 there is a proposal to charge the taxpayer for IRS help. That hasn’t happened yet. The IRS has long maintained that oral advice from them can’t be relied on for tax return preparation.
  • IRS Form 982 instructions. Even cancelled debt CPAs use tax data bases to avoid reading the IRS 982 instructions.
    • I read Publication 4681 every year but not the Form 982 instructions or the Form 1099-C instructions.
  • Form 982 instructions simultaneously provide too much and/or too little info to be helpful – go figure.
  • Form 1099-C instructions. These are for the lender not the taxpayer.
  • A free consult from me. (910) 399-2705. There are quirks with IRS insolvency and the IRS insolvency worksheet.
  • Tax software. Most consumer tax software programs don’t handle student loan cancelled debt and insolvency directly.
    • Usually there’s a manual work around, but you have to know what you’re doing.

Cancelled Debt CPA with a Virtual Office

There’s at least 100 posts on this website discussing various aspects of cancelled debt, Form 1099-C, the IRS Insolvency Worksheet, Form 982, etc. If you like what you read consider calling for a free consult. Distance isn’t a factor for preparing your cancelled debt tax return.

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100 comments to Cancelled debt CPA discusses Tax Consequences of Student Loan Forgiveness, Cancellation and Discharge | Insolvency on Form 982 and Form 1099-C | Form 1099-C instructions | Form 982 instructions

  • Jeff

    Hi Gary,

    I’ve been researching insolvency on yours and many other websites as my wife received a 1099-c for some forgiven student loans. We were actually married on 12/22/13, and the date of forgiven debt on the 1099-c is 12/31/13 even though she received a formal letter indicating forgiveness back in May 2013.

    Anyway, I would really like to hear your take on PLR 8920019 regarding counting a spouses assets in the insolvency calculation. I first found out about it here: http://www.taxalmanac.org/index.php/Discussion:Cancelled_debt_attributed_to_one_taxpayer,_but_filing_joint

    Thanks for getting info out there about this complex topic!

  • Dennis Carey

    Hello Gary. My wife’s student loans were discharged in 2011 due to disability (a TPD). We did not find out until this year, when the IRS contacted us, that the discharged debt was taxable. Now we have a huge tax bill as they added penalties and iterest going back to 2012.

    As part of the TPD process, my wife is under a 3 year Monitoring Period. If she has income above the poverty level during that time her loans are reinstated. My question is, what are tax implications of the loans being reinstated? Will the IRS go back and cancel the discharged debt (not count as income) and adjust our taxes accordingly?

    Thanks in advance,

    • Hi Dennis. I’d amend the 2011 and or 2012 tax return to include the Form 1099-Cs, Cancellation of Debt, and Form 982, Reduction of Tax Attributes. You’d use the insolvency exclusion of Form 982 by completing the IRS Insolvency Worksheet. I hope your actual question disappears with that.

  • Anna

    Gary the words “thank you” are often used so casually that they have lost all of their meaning. Yet, these two words are all I can think of to describe my feelings of relief, if you indeed have the answer to my BIG problems. I currently live on $8,897.00 in Social Security Disability so I qualify for to have a student loan for $47,322.00 discharged. My HUGE concerns are that Social Security will consider this an income so I will not have any Disability income AND that I will not be able to pay taxes on $47,322.00 when I cannot afford any income taxes at all. Will the Form 982 completely eliminate these problems?

    • Hi Anna. I talk with a lot of folks like you. Generally we’re able to eliminate the tax consequences of student loan cancelled debt on Form 1099-C. But even if you do end up owing taxes to Uncle Sam we have a few techniques to either not pay them or pay less than what you owe. Try not to worry.

  • Arthur

    Hi Gary,

    My student loans were discharged several months ago at which time I was insolvent. Are the loans considered discharged by the IRS at the time of first notification or after the 3 year waiting period? Thanks.

  • San

    Good afternoon Gary,

    I have just been awarded SSDI about four months ago and I was advise by a friend that I can have my student loans “discharged.” However, everywhere I read, it says I would have to pay taxes, but that there’s a way (since I’m disable with a SS income) that I can be exempt from such. Is this true? And is this what’s called “Insolvency Exclusion?”

    Thank you in advance for your help

  • brian

    Hi Gary, my question for you is similar to Dennis question if you would give me an idea of what I’m dealing with. I paid taxes on my student loan discharge also because I was disabled (1099), but ssa took away my disability so my student loans are coming back into play. I never made it thru my 3 years! How do I go about getting that money I paid the IRS back? What forms to fill out or will irs notice and send it back automatically or…? thanks in advance!!

  • Hi Gary,
    I paid off a $20,000.00 student loan with an negotiated settlement for $1,100.00 in 2012. I was married when I co-signed on the loan with my wife and step daughter in 1999. My wife and I declared bankruptcy and divorced that year but the loan was not included in the list of debtors. I have been told this loan did not qualify and could not be included in the bankruptcy. I am now filing my 2012 return(late)and have the 1099-C for the discharged amount of the loan. I have a copy of the loan document with all of our signatures on the document with our SS#. Can I share the discharge income with them by filing a 1099 Misc for a 1/3 of the discharge amount each?. My ex-wife, step daughter and I are not in touch any more.

    • Hi Mike. Don’t have all the info I need. You’re probably both liable. Meaning if you pay your share, you’re still responsible for her share as well if she doesn’t pay. Tough situation with no communication. If your amended tax return can absorb the entire 1099-C without future tax consequences, it might be easier to claim the entire 1099-C yourself.

  • Cynthia

    I live in Idaho. Am disabled and in the process of getting my student loans discharged. I understand that I will need to file a form 982 for insolvency on my federal tax return. My question is, does the State of Idaho also need an insolvency form so I don’t get taxed on the state level?

  • George Madathikunnel

    I am a retired federal government employee (contract specialist, series 1102) with twenty years of service. I left the job on disability and my student loan was discharged.
    I understand that I will need to pay tax on discharged student loan. I also understand that public service employees are eligible for tax exemption on cancelled student loans. I would very much appreciate your advice.
    For the last en years, my income was the retirement annuity I had from the employer, and the current annuity is $ 20844.00

    I thank you.

  • Andrea

    My husband’s debt was discharged on 11/5/14. At that time, we had medical bills for $43,000. The hospital decided to pay for those bills through charity in January 2015. May I still use those bills on the insolvency worksheet?

  • joe d.

    Hello, I just found your page. My situation is a bit more unique than most others here. My loans are scheduled to be discharged soon (6 months) as I am currently disabled (SSDI) and I do not own a home or any other assets so I’m getting the feeling that proving insolvency will be a bit easier. Or maybe I’m wrong.

  • joe d.

    Also, to prove insolvency one has to enter a cash value of a life insurance policy. I do not personally have a life insurance policy asset, but does this apply if maybe a family member lists me on a policy they may have, just in case they die?

  • Brian A

    Hello –
    I am struggling what to do with a 1099-C I just received 2 weeks ago from Mohela. The VA awarded me 100% dissability, and they informed me of TDP student loan discharge. I submitted the paperwork and I received cancelation 1099-c dating back to Aug. 2013. In looking at various Pubs 525 – they say anything through VA would be tax exempt. In looking further cancelation I an reading federal loan cancels would also be exempt. I am look at the 1099-c instructions and I see I need to pay. I have asked various folks and they all seem to say there is a gray area here – please let shine some light on this topic for dissabled vets.


    • The best I can is direct you to Publication 4681. Read up on insolvency. BTW very few Folks in your position actually owe anything if the return is properly prepared. Thanks for serving.

  • joe d.

    When calculating insolvency for a debt (student loan), can a federal tax amount held in uncollectable status be used and counted as a liability for insolvency? The federal tax debt is still owed, it’s just being held as uncollectable.

  • Earl

    Hi Gary,
    Regarding 1099C-Cancellation of Debt of Student loans.
    Filling out the 4861 work sheet.
    Under liabilities.
    1.Do we include the Student loan from the 1099C? or is this additional student loans
    Under assets: interest in retirement account.
    2. Is this interest payment personally received in 2014 or is this the total amount in the retirement account which is not yet withdrawn?
    Thank you, Earl

  • Thomas

    Recently I was told that the debt cancellation would be reinstated and I would receive reinstatement letter soon. But I haven’t received the letter but the tax due is tomorrow apparently I can’t make it, So Now I am about to file extension due to complicated case of 1099-C.
    On the extension page, I was asked total taxes I owe. When I calculate the taxes I owe, should I include the cancelled debt amount?
    Once I receive the reinstatement letter, how can I report on my tax.

  • Linda

    Hi Gary,
    I just received a notice from the IRS that my husband and I owe the IRS $8814 for our 2013 taxes, partly because of a 1099-C issued (that we never received) for a student loan forgiven due to my permanent disability. We definitely owe more than we own (about $80K insolvent in 2013, roughly) but filling out that 982 is daunting. We had a foreclosure in 2011 and the second was not forgiven, and we are still shown as owing about $50K, so I am assuming that would still be considered a liability.

    It also appears that the IRS is not recognizing tax payments made by my husband’s employer on a second W-2 (he changed jobs in March 2013), so they adjusted down the amount we paid in, although they didn’t adjust the income down. (They don’t even list the second employer. If the W-2 for that job wasn’t recognized, then why wouldn’t they take off both the income and the taxes paid?)

    Thank you in advance for any advice you can offer. I’m assuming we will have to file an amended return, after getting a copy of the 1099-C from the issuing agency.

  • Lauren

    When filing a form 982 for a canceled credit card debt, is a current student loan considered a liability if the student is still in school and therefore not required to make payments due to deferment?

  • Barry

    I just received a disability discharge for my Stafford Federal Student Loans. They are a mix of subsidized and unsubsidized. I have no idea if these are “certain qualified” as stipulated in IRS Topic 431 under “EXCEPTION”. All were taken at qualified Universities (U of Illinois and U of Colorado).

    My understanding is that, if so, no 1099-C will be generated as cancellation of these “certain qualified” loans are not taxable.

    Further, I am declaring bankruptcy (chapter 7) on August 1st.

    Do I include these loans even though they have been discharged? Perhaps there is an advantage to. I can qualify under the Brunner test, but even if the Trustee denies these, I have lost nothing.

  • Rita

    Hello, Gary, My loans were recently discharged. They total is about 121,000 not including the fees and interest that total to over 200,000. I worked for Los Angekes SUPERIOR Courts as a court reporter. If my loans were discharged this year with no income, what tax will my 1099 (c) be from the IRS?

    If I file insolvency, is my retirement included?

    Thank you.

  • Emily

    Hi Gary. I found your site as I am researching TPD for my student loans. I believe I qualify and will be able to show insolvency. My question is, I just got married and we both have business that we sell on eBay. Would the value of my inventory or his inventory be included as an asset? We do not own a home. Should we be filing our taxes as joint or separate?

  • Hi Gary,
    I see a couple other people have asked this same question, but I was looking for a more specific answer if you know it. Essentially, my loans were discharged, but are going to be reinstated since I am going back to work. What exactly do I file with the IRS to get them to nullify the 1099C. The goverment only gives me a “Reinstatement Letter”, but not an amended 1099C. Your answers to this question above say to file an amended tax return with form 982 adding in the loan amount, but I don’t understand how that could work since at the time the loans were discharged I didn’t owe on the loans anymore. I haven’t filed my taxes with the 1099C yet, but they are due in April. Assuming I can get the Reinstatment letter, I could possibly fix the problem in that return without filing an amended return. The IRS, CPAs, and tax lawyers I have spoken with cannot figure out exactly what form i fill out and how I fill it out to nullify the 1099C. It can’t be the case that I have to pay taxes on loans that have been reinstated. I just don’t know how to handle it with the IRS and I need to be 100% positive that the way I am told to do it will work. I’m begging you for your help on this. It seems like you are the only person with experience in the matter and if I need you to handle my taxes, I will definitely do that. Thank you for your time!!!

  • Thanks Gary, yeah, I’ve read that publication, but the only option I see where you could include your student loans is for insolvency, which doesn’t necessarily cancel them out entirely based on you circumstances. There should be something straightforwar where if you have pay the loans, you can cancel the 1099C. It must happen all the time not just to people with disability discharges, but all sorts of discharges for different reasons.

  • Eric

    I graduated from pharmacy school with 250,000 in debt. Currently I am using the Pay-as-you-earn government repayment plan. In this plan if you make monthly payments for 20 years; the remaining debt will be forgiven. The amount forgiven will be around 450,000. When this debt is forgiven I assume this 450,000 will become taxable income? Or are there other options?
    Also, will this put me into the appropriate higher tax bracket for that year (i.e. is this forgiven debt subject to same tax rates as any income)? I’m just trying to prepare and save for a one-time massive tax bill in 20 years.

    Thank you very much!

    • Ouch Eric. Well, if current regs still exist in 20 years, yes that $450,000 is cancelled debt. You could use insolvency and Form 982. You can do some tax positioning since you know the date. Insolvency is balance sheet based so your income wouldn’t affect the insolvency. But yes it would be ordinary taxable income.

  • Darla

    My husband will have student loans forgiven I believe this year 2015, but not sure, we have not received anything from them yet. But they claimed if he makes more than $15k next year they will be reinstated. I think it might be a possibility that he will make more and they will be reinstated. So is there anyway to defer paying taxes on these for 2015 in case they are reinstated in 2016? Is there a way to defer reporting income to the next year?

  • Rita

    Gary Bode, how much do you charge? I need help with my discharge. Also, does my retirement in my 457 apply to insolvency if it is greater than the discharge? I was on disability and Worker’s Comp, and I was told only actual income is used. How much will they tax?
    Thank you.


    • Hi Rita. Our charges depend on the complexity of the return. We usually ask to see last year’s return to help estimate the cost. Plus I always like to look over the prior year’s just in case there are issues with it.

  • Rita

    Gary, I have asked a couple of previous questions, but I have recently been granted TPD forgiveness, but I am worried that my retirement pension and a disability (not SSA) will be considered as income for a Worker’s Comp disability, but I have no earned income. Is this true?

    Also, I want to clarify: If my 457 is higher than forgiveness, can I file insolvency? I don’t have other money or property. I need help. What state are you in?

    Thank you.


  • Mrs. Martin

    Good Day! My husband got his school loan discharged in Dec 2011 (disability)- we received a Form 1099-C in 2012 that says, “Date of indentifiable event 5/30/2012″…we have held off filing our 2012 taxes because we need to file Form982 with it. Our accountant is not familar with this form…I’m hoping since the 1099-C says 2012 in big print that is the year we should file the 982 formwith and not 2011 when it was discharged-since we have already filed that year (?) Could you please tell me if you are able to complete this form (982)and what the cost would be? Our accountant is doing our usual tax filing this week. Thank you!

  • Lorraine

    Hello, My student loan was discharged due to permanent disability in June of 2015. Due to the discharge I was anticipating receiving a 1099c for 2015. Since I had not received the 1099c I inquired about when it would be sent out. I was then told that due to a change in law that took effect in January 2016 that the 1099c would not be issued until AFTER the 3 year monitoring period. Now I’m confused. I have a June 2015 discharge date but apparently I will not receive a 1099c for that discharge until 2019 for the 2018 tax year. Should I still file form 982 and calculate any insolvency with my 2015 return as the discharge was in 2015? Thank you!

    • Hi Lorraine. I haven’t had to research that issue yet, sorry. Sounds like you’d wait. But there are loopholes in other types of cancelled debt where the taxpayer can claim all the cancelled debt now. So you may want to investigate further.

    • Terry

      I have the same Issue. I want to know if I can claim the loans as liabilities since they wont get reported to the IRS until 2018. The Nelnet rep told me everything is off their books and everything is cleared but nothing wll get reported for awhile. As far as I know, as soon as a debt is discharged in a particular year, you get the 1099c for that year and the IRS also gets a copy. But the IRS won’t be getting a copy of anything. My best guess is to just leave the issue alone and let them sort it out in three years, because we wouldnt know what discharge date they would use on their 1099c. The discharge date on the 1099c is the one the IRS goes by. What I plan on doing, is just not worrying about it til the time comes and when I do my returns, and do the insolvency worksheet for another cancelled debt, ill ask the tax professional should I include those cancelled loans as liability. I’m already insolvent even without the loans being included. The cancelled debt gets counted as liability and my student loan amount after calculating, were over 90,000, plus 34,000 car loan and other loans and debt, so it would be easy for me to prove insolvency. You have to prove the insolvency on the day before the debt was discharged, which is the one showing up on the 1099c because some creditors will use that as the default date. I had a debt written off 3 years ago and I am just now getting a 1099c for it and the date they have for the discharge is 12/31/2015. These creditors can be tricky

  • Rique

    I have an insolvency question. Just to try and keep it simple. If 75k Student loan was discharged then my liability at the time was 75k, that in itself nearly makes me insolvent automatically I would think? Or am I missing something?

    I guess what I am saying is. I owed 75k so it was a liability the cancelled debt was 75k, assuming all other liability and assets equal out then isn’t the 75k alone cause for insolvency even if that was the debt that was cancelled?

  • Karen A

    Hi Gary….
    I got a 1099-c for a car loan that I settled with back in 2015 for amount less than owed.
    I was looking at the insolvency worksheet and had a question about the student loans under liability.
    I have student loans of over $20,000 but have not started paying them back yet because I am still in school. Can I use this as a liability?

  • Brenda

    Hi Gary. My student loans were discharged in July ’15 due to TPD. I was insolvent at the time. I did not receive any 1099-C forms, at all. I’m trying to do my 2015 taxes and I don’t want to have to ammend them later because of this. What’s your advice? I know the amounts of the discharged loans, but I don’t know if not receiving the 1099-C was intentional or not. Thoughts? Thanks!

  • Kathy

    Dear Gary, Thank you for posting this information. I also was completely blindsided by news years after the fact that I owed big money for loan forgiveness. Original date of forgiveness was 2012. I was able to find help and an amended form and 982 resolved that tax liability in 2014. Part of my disability is memory loss, confusion and disorganization from multiple head injuries. All the information regarding my student loan debt went to a 18 years ago address, even 1st 1099-c.I had been updating and receiving other mail regarding student loan. I did not realize I needed to send in proof of income at some point and my loan was reinstated in 2014 and discharged 1/2015 after the three year waiting period. So I am having sleepless nights because I received another 1099-c for the whole amount again with the identifiable event as 4/15. My discharge letter states that it was discharged on 9/13/2012. I was insolvent at this time. Do I have to prove insolvency again? Can they tax me twice for same forgiveness? This is so confusing and distressing. Thank you for your help.

  • Elizabeth

    My late husband and I were/are teachers, file jointly and each with individual student loans. My husband passed away in 2015 and I received a 1099C forgiving his student loans. Is this taxable? Do I report this?

  • Terry

    I have a question. Like someone else mentioned earlier concerning discharged student loans. I had my student loans discharged July 2015 and I too thought I would get a 1099c for 2015 concerning the discharge. I called Nelnet a few days ago and they told me, effective January 2016, they will not be reporting the cancelled debt to the IRS until 2018, which is after my three year post discharge monitoring period ends. Another gentlemen told me the same exact thing today because I wanted to double check. So if that’s the case, and since it wont get reported to the IRS until 2018 and I receive the 1099c in 2019, I could still claim my student loans I owed before the 2015 discharge date as liability right? Nelnet told me everything was written off their books but it wont get reported until 3 years later. Can I still claim the loans as part of my insolvency?

  • Stephanie

    Thank you for this information. I tried to comment a few days ago but it wouldn’t go through. My husband and I did a deed-in-lieu that closed in January 2015. (we had attempted a short sale for over a year but after three contracts, none were successful). We bought the property at the height of the market at 203k in 2007 when we were super younger and ignorant to finances. We rented it out after we purchased another home, only to be in over our heads with having to still pay on the mortgage of the home each month. Regardless, we did a DIL with BOA. we received a 1099A and a 1099C, both dated 1/14/15. Box 2 of 1099A stated the principal balance was $149,419.30 and box 4 stated FMV at $189,152.00. Box 5 was checked. 1099C Box 2 states amount debt discharged at $34,420.63. Box 5 is checked, Box 6 is G and Box 7 was left blank. After some research, the home apparently sold for 91k in July 2015. I am confused with exactly where the bank is getting the 34K from on the 1099C. So we have to claim this amount as income?

  • Michelle

    Can you look into the question about the 3 year waiting period before the issue of the 1099-c & confirm or deny it? I haven’t received mine yet, don’t want to do my taxes & then get attacked by the IRS in penalties etc. after the fact. Thank you!

  • Michelle

    Just to let you know, after ALOT of phone calls to the IRS & the Department of Education, the January 2016 law referenced above by Lorraine, was confirmed to me by the Department of Education. It’s for loans discharged in 2015 and after. So since my loans were discharged in 2015, I will not receive a 1099-C until after the 3 year monitoring period.

    Email I received as confirmation from the Department of Education for my records: Dear Michelle,
    Thank you for contacting us regarding your Internal Revenue Service (IRS) Form 1099-C. You will not be issued an IRS Form 1099-C until you complete the three-year,
    post-discharge monitoring period. Please note that under previous regulations, you were issued this form prior to completion of the monitoring period.
    In accordance with federal regulations, any loan debt totaling $600 or more is reported to the IRS as taxable income. This balance will be reflected on your IRS Form 1099-C, and may be considered income for tax purposes. Please consult a tax professional, visit IRS.gov, or call the IRS tax help line at 800.829.1040, to determine how this may affect your personal taxes.

    So I was told that I will receive my 1099-C in 2019 for the 2018 tax year. This was a huge relief because now I can plan for my 2019 taxes. If you have any advice on how people like me should prepare for then for my 2018 taxes to save as much money as possible please let me know! Thank you!

  • Elizabeth

    From my previous question of Feb 7-I looked at your form 982 you have talked about. My husband passed in May of 2015 and after submitting the death certificate the student loan was forgiven per the 1099C in July 2015. Is this debt included on the 982 form in the liabilities? He was personally liable himself per the 1099C.

  • John

    Thank you for time, especially during tax season. Please provide clarification pertaining to Insolvency, the IRS website is too vague. I’m a Disabled Veteran who has received a kick to the head in the form of a 1099-C (Student loan discharge). My wife and I file joint return; do I complete the Insolvency Worksheet with assets and liabilities only I am accountable, or together? My wife has student loans, pension/ retirement, and other accounts in her name alone. Also, under liabilities “interest in a pension plan, IRA, and etc.” does that mean the account balance the day before the discharge date? Looking forward to your reply.

  • Susan

    Hi Gary,

    I had $78K in students loans forgiven due to TPD – approved on 1/14/2015 and loans confirmed at zero balance on 3/24/2015. I haven’t received my 1099-C yet so I contacted NelNet who contracts with the Dept of Education to handle the approvals and they stated that “per a policy change that went into effect on 1/18/2016, IRS Form 1099-C will not be issued until you complete the three-year, post-discharge monitoring period. Please note that under previous regulations, you were issued this form prior to completion of the monitoring period.”
    I was concerned about what they were telling me, so I asked the following question:
    “so I’m clear, for 2015 tax purposes, since my loans were discharged in 2015, but I will not be receiving the 1099 C until 2018, I will not be responsible for the taxes on the discharged amount until 2018 – is this correct??”
    And their response was: “That is correct. We will not report the discharge to the IRS until after you have successfully completed the monitoring period.”

    So I’ve got a couple of questions – if the IRS requires that the discharge be reported in the year that the loans were discharged, but Nelnet doesn’t issues the 1099C until until 2018, am I going to get hit with 3 years of penalties on top of the taxes from the discharge? Should I report it this year instead of waiting for the 1099C? Will the 1099C show a date of 2015 or 2018?
    I’m even more worried/concerned now…

  • Kristin

    I have a question. My husband and I married 11/28/2015. He and his ex-wife had a home together that finally foreclosed in 2015. He’d moved out back in 2010 so I know the mortgage debt forgiveness doesn’t apply to him but he’s wanting to claim insolvency. The date on the 1099-C he received was 8/31/15. This date is prior to our date of marriage. We were legally married in 2015 so I know we have to file married jointly or separate but I’m wondering if my assets to liabilities would apply in the calculation for the worksheet used to fill out form 982 if we filed married filing jointly or separately?

    • Your assets wouldn’t be included as they are before your marriage. You might consider using the injured spouse Form 8379. Or at least a cover letter and appropriate documentation. Your case is good but the IRS might spend two minutes on your return. You need to show them that the red flags are actually legit.

  • susanna

    I had a private student loan canceled but still owe a significant amount on others. Do you know if I can include my current loans in an IRS insolvency?

  • D. Henninger

    I’m currently a 90% disabled veteran and the VA is (supposedly) reviewing my file to decide whether the combination of issues constitutes a 100% disability rating. For now I need to stay in good standing with the holder of my student loans which includes updating my information for which payment plan is appropriate. For the past 2 years I’ve been on “income-based” and paid $0/mo.
    Apparently there is a brand new change as of Dec 2015. Now when determining my ability to pay, if my husband and I file our return Jointly, his income is included in determining my monthly payment. If we file jointly it is not.
    So…if the IRS Insolvency Worksheet is ONLY based on one person’s situation regardless of whether a married couple files Jointly or not, how in the world does this new practice of including spousal income make sense? I guess we will need to file Separately unless I opt for a forbearance and wait out the VA’s decision on my rating. So frustrating and more confusing than it needs to be. Taking down your contact info for the future. Thanks

  • D. Henninger

    I had a typo….I meant “If we file Separately, my husband’s income is not included”

  • Renee

    Hello, I’m hoping for some direction! I am helping my mom file for a disability discharge for the PLUS loans she took out for me. She is permanently disabled and unable to work. My parents are in the process of a divorce. They have a high combined income. Should I wait until they are divorced to submit the paperwork? I am hoping to increase the chances of having the tax written off for insolvency, or at least be taxed under the tax bracket for her individual income. Who would I contact for advice? A CPA? Thank you for your help.

  • melanie reynolds

    RE: Totally Misleading, Incorrect, & Inaccurate use of the term: “Debt-Discharge” by The Department Of Education & the Those Agencies who represent The Department Of Education[ Nelnet] in the description & processing of claim information for persons afflicted with disabilities who are seeking a debt “forgiveness/discharge/cancellation” of debt for student loan re-payment.
    Many Ops have posts in this forum that have questioned the reason why that upon being granted “A TPD Discharge[?]” ; they have not received Form 1099-C . As disturbing as the tax consequences that are the result of Form 1099-C; on a positive note, Form 1099-C establishes a clear date & time frame in which the debt has been legally canceled/discharged/extinguished. As per the information supplied by the IRS in context to Form 1099-C; Form 1099-C is filed for the year in which an identifiable event[DEBT CANCELLATION] occurs.
    With this “Three Year Wait & See” or [probationary-status?]The Department Of Education[Nelnet] is incorrectly misusing the term “A Debt Discharge” when clearly it is Not A Legal Discharge of Debt-in the fact that you are not provided with Form 1099-C! The truth would seem to be that the best possible outcome of The TPD Application Process is to be placed “under consideration for a time period of 3 years” for an actual, legal total & permanent disability debt discharge.

    Information Re: Form 1099-C

  • Marlo

    Hi Gary,

    I have a situation in which I have been on SSI disability and insolvent for over 10 years.

    2011 – My student loans were forgiven. A 1099C was sent, but I never filed any taxes that year.
    2014 – Due to a clerical error, the loans were reinstated. Again, no tax filings were filed.
    2015 – Loans were finally discharged for good and I received a 1099C. I filed this year for insolvency (form 982). I also filed the last 6 years (2009-2014) prior to this as 0 income even on the 2011 year.

    Did I do this right? Or do I need to amend the 2011 year to show the first 1099C even though the loans were reinstated in 2014?

    Thank you for helping people. You’re a good man.

    • I think you need to amend 2011 to include the student loan cancelled debt. But some Folks would just wait on the IRS to sort things out. Sounds like $0 tax due and they might just ignore you.

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