Originally Posted by MBaker
My mother's loan has already been discharged. She received a 1099-C that states her debt has been cancelled. Will she have to pay taxes on what has been discharged?
She has not filed taxes in 7 years and she is 67 years old, with no income but her Social Security. My father does not work and he is 66, he also collects Social Security.
She still has to report the amount on the 1099-C. Even if she qualifies for one of the exclusion clauses, your mother has to report the amount and then file for the exclusion.so the amount on 1099C needs to to be reported on her taxes.BUT Not all canceled student loan debt is taxable. If her debt had been forgiven because she worked in a job that qualified her to have some or all of her debt wiped out (certain medical, teaching or law-enforcement positions, for example) she wouldn't now owe the IRS some of the forgiven debt. In addition, she may owe some dollars to the state for cancellation of debt income(depending on each state law I guess). ALSO this is not your case, however, student loans are usually even non-dischargeable in bankruptcy. This means that after your bankruptcy erases all your other debts, you still have to pay student loan debt. Filing bankruptcy can be an option in only one circumstance.The law lets you eliminate your student loans if paying them creates an "undue hardship" for you and your family.
For the list of qualifying events for exclusion, you can check it out with the IRS If you receive a Form 1099-C, that means anapplicable entity has reported an identifiableevent to the IRS regarding a debt you owe. Theidentifiable event may be an actual cancellationof the debt or it may be an event the applicableentity is required, solely for purposes of reportingto the IRS, to treat as a cancellation of debt.
note; Each individual state has their own requirements when it comes to the treatment of a student loan. For instance, the State of Pennsylvania does not require you to pay income taxes on a discharged student loan or any other loan as they do not consider loan forgiveness as personal income. For what your individual state requires of a discharged student loan, you will need to go to your local state's website and search "student loan discharge."