Student Loan Success, But Taxable Income? Plus Boo Sallie Mae :(

[carlie]

Well, I'll probably get shot down for posting this . . .

But . . . .

I'm looking at the great option of being on the hook for 32 K

in student loans . . .

pretty much just being written off the books in return for the much lower

figure of 8 K.

Basically by them writing off the 32 K - it's the same as receiving 32 K in income

and now paying out 8 K in taxes on that income.

I am still in awe that the student loans can be shaken off - what a gift for the 100 percent

P&T vets.

Heck - the civilians can't get their student loans discharged with a bankruptcy !

So - this is why I see the 8 K versus 32 K as actually, a big win : - )

[rpowell01]

8k of taxes on 32k is a lot over taxing, isn't it? But I agree 8k is better than 32k..

[ping jockey]

Well, I'll probably get shot down for posting this . . .

But . . . .

I'm looking at the great option of being on the hook for 32 K

in student loans . . .

pretty much just being written off the books in return for the much lower

figure of 8 K.

Basically by them writing off the 32 K - it's the same as receiving 32 K in income

and now paying out 8 K in taxes on that income.

I am still in awe that the student loans can be shaken off - what a gift for the 100 percent

P&T vets.

Heck - the civilians can't get their student loans discharged with a bankruptcy !

So - this is why I see the 8 K versus 32 K as actually, a big win : - )

Carlie,

Apologies for not seeing this sooner, for some reason, I'm not getting those "auto-notices" from Hadit.

From the facts above it appears you have $32k of "cancellation of debt" income; unless you meet one of those exceptions in U.S.C. 26 Sec. 108(a) of the Internal Revenue Code. Although the $32k is taxable income, and you're in the 25% tax bracket, then yes the tax owed is $8k. Paying taxes is never fun, but $8k is much less than $32k.

If I knew more of the facts of "why" you were lucky enough to receive a student loan cancellation of debt, I could look at the exceptions in I.R.C. Sec. 108(a) and see if any fit. Keep in mind, we have three years to file an amended claim to recover those paid taxes if you do qualify for an exception.

The relief for 100% P&T Vets is amazing; because student loan debt is NOT dischargeable even in a Chapter 7 liquidation bankruptcy.

Email me personally, if you want to.

My best,

PJ

Edited May 4, 2013 by ping jockey

[john999]

I would talk to a CPA about this since there is always a way to appeal these things based on hardship. Cheaper to talk to a CPA or tax lawyer than to just pay it.

John

[CWOArmy4]

Has anyone found out more regarding this topic? It seems ridiculous that we are disabled but this discharge money would count as income?! I have 43K discharged and with my retirement and other stuff I ended up owing over 18k (including state). I am going to try to claim insolvency but .....

[Kimmy]

I am a CPA. Cancelled debt is the same as somebody giving you $32,000 cash (income) and you turning around to pay your school debt. I suggest we be smart and proactive with the use of your retro pay. Instead of just spending it all, think about putting it somewhere to get a tax deduction to counter the affect of the cancelled loan debt. For example, contribute to an IRA or make a charitable contribution etc. Contact your tax professional for a solution that fits your individual set of circumstances.

Edited April 9, 2014 by Kimmy