Student loan borrowers who have loans forgiven may be in for a heart jolting event. Every day we hear radio and tv advertisements about student loan forgiveness. Technically, the IRS comes knocking when you have any forgiven debt because it’s considered income. During the mortgage meltdown of the late 2000’s, many people lost their homes and companies wrote off their debt. Creditors may sent you a notice 1099-C , “Cancellation of Debt”. Read about that here from the IRS. You must report this on your form 1040 tax return as income. The exceptions are listed on the publication but they are few and most people won’t qualify. If you end up completely broke (what a shame after all of that educational investment) you can claim insolvency.
Read more from MSNBC.
Now, there is hope. There are numerous options to prepare for the potential tax hit. Consulting with a financial advisor who understands the different student loan programs and your options is critical. Talk to us about finding a financial advisor who can help you with a plan to avoid this problem.