Looking to get your student loan forgiven?

President Joe Biden has been working with the Department of Education to determine how student loan debt forgiveness will work.

During Biden's campaign in 2020, he expressed support for $10,000 in relief. Current reports suggest that forgiveness would apply to college-level federal student loans only (graduate school loans would not be eligible), and income limitations would be considered. Thresholds reported are $125,000 to $150,000 for single and $250,000 to $300,000 for joint filers.

If relief is provided, the big question is, what are the tax implications? Surprisingly, for federal tax purposes, none.

While typically, cancellation of debt is taxable, there are some exceptions. One of those exceptions is for student loan debt canceled between Dec. 21, 2020, and before Jan. 1, 2026, if the loan was provided expressly for postsecondary education expenses and was made or backed by the U.S.

Assuming the forgiveness only applies to federal loans, it appears to fall under this exception. This also means a 1099-C would not be issued, assuming the lender follows the provisions. There may be state tax implications, depending on whether the state conforms to the federal provisions.

We'll keep you informed as developments unfold.

How we can help

If you need help or advice with your finances, contact us today. TaxAssist offers an expert professional advisory service. Inquire online here to book your free, no obligation consultation.

Last updated: 22nd July 2022