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Old 03-30-2014, 03:02 PM
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Do I need to file if I don't owe taxes even if my COD income is not excluded?

Hi, I have about $5,000 of Cancellation of Debt income for tax year 2013 for a discharged student loan by the Department of Education (Nelnet) due to total and permanent disability. I can elect to exclude the full amount of this income due to insolvency, per IRS rules, but even if I don't bother to exclude this, I still won't owe any taxes as I get less than $10,000 per year in Social Security Disability as my sole income (plus about $2,000 a year in SSI, which is non-taxable by definition), and am single with no dependents. Do I still need to file?

Thanks!



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Old 03-30-2014, 04:37 PM
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Originally Posted by mileena View Post
Hi, I have about $5,000 of Cancellation of Debt income for tax year 2013 for a discharged student loan by the Department of Education (Nelnet) due to total and permanent disability. I can elect to exclude the full amount of this income due to insolvency, per IRS rules, but even if I don't bother to exclude this, I still won't owe any taxes as I get less than $10,000 per year in Social Security Disability as my sole income (plus about $2,000 a year in SSI, which is non-taxable by definition), and am single with no dependents. Do I still need to file?

Thanks!
The IRS forms are incredibly confusing. the insolvency exclusion, which requires debtors to be insolvent immediately prior to the discharge, may have allowed you to avoid paying taxes on some or all of the student loan. Debt that was discharged in bankruptcy can be excluded from your taxable income. See Form 982. At the top of the form you’ll see box 1a "Discharge of indebtedness in a title 11 case" (don’t be confused by the reference to title 11 -- that’s just the part of the U.S. tax code that covers bankruptcy). You can check that box. On Line 2, you’ll put the amount that was discharged in your bankruptcy for that debt and any others that were reported on a 1099-C. That amount will be excluded from your income. However, even though the discharged debts are not part of your gross income, the amount discharged can be required to reduce any tax attributes that the debtor/taxpayer may have, such as net operating losses, capital loss carryforwards, basis reductions and others .UNLESS you carry hten, you do not need to file return.

Note;The IRS considers any amount reported on a 1099-C as taxable income unless you can prove insolvency at the time of cancellation. But there is no tax break for student loan debt that has been cancelled due to disability, despite the fact that borrowers who qualify for cancellation are considered totally and permanently disabled, and may never work again. In fact, the Department of the Treasury has specifically stated that student loans cancelled due to the Death and Disability Discharge are taxable.



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Old 03-30-2014, 05:25 PM
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Thanks for your reply Wnhough.

I did receive a 1099C from the Department of Education for the cancelled debt, and I was insolvent immediately prior to the date of cancellation. I amount I am allowed to exclude, when including my assets, is the full cancelled debt.

I guess I still need to know if I am required to file though, since even if the COD income is not excluded from my gross income, I still wouldn't owe any taxes, given my standard deduction.

Also, do I include the excluded COD income on my 1040, or just on my 982? There doesn't seem to be a place on my 1040 to enter that amount, but if I don't enter that, the IRS may think I owe taxes on it.



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Old 03-30-2014, 06:38 PM
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Thanks for your reply Wnhough.

I did receive a 1099C from the Department of Education for the cancelled debt, and I was insolvent immediately prior to the date of cancellation. I amount I am allowed to exclude, when including my assets, is the full cancelled debt.

I guess I still need to know if I am required to file though, since even if the COD income is not excluded from my gross income, I still wouldn't owe any taxes, given my standard deduction.

Also, do I include the excluded COD income on my 1040, or just on my 982? There doesn't seem to be a place on my 1040 to enter that amount, but if I don't enter that, the IRS may think I owe taxes on it.



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Old 03-31-2014, 12:52 AM
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Originally Posted by mileena View Post
I guess I still need to know if I am required to file though, since even if the COD income is not excluded from my gross income, I still wouldn't owe any taxes, given my standard deduction.
.
as mentioned previously,it depends; unless you owe tax to the irs, youdo not ned to fileyour return with the IRS;however,Even if you do not have to file a return, you should file one to get a refund if you are subject to it.
please visit the irs website here for more info;Do I Need to File a Tax Return?



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Old 03-31-2014, 01:23 PM
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Thanks again Wnhough! I appreciate the link.



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