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IRS Topic No. 431 Canceled Debt - Is It Taxable or Not?
AUGUST 21, 2019
President Trump Remarks at AMVETS Convention in Louisville, KY
President Trump delivers remarks at the American Veterans (AMVETS) National Convention in Louisville, Kentucky
....
00:32:07
I'M PROUD TO ANNOUNCE THAT I AM TAKING EXECUTIVE ACTION TO ENSURE THAT OUR WOUNDED WARRIORS ARE NOT SADDLED WITH MOUNTAINS OF STUDENT DEBT. IN A FEW MOMENTS, I WILL SIGN A MEMORANDUM DIRECTING THE DEPARTMENT OF EDUCATION TO ELIMINATE EVERY PENNY OF FEDERAL STUDENT LOAN DEBT OWED BY AMERICAN VETERANS WHO ARE COMPLETELY AND PERMANENTLY DISABLED. [APPLAUSE]
00:32:49
INCREDIBLE. NOBODY CAN COMPLAIN ABOUT THAT. NOBODY CAN COMPLAIN ABOUT THAT. THE DEBT OF THESE DISABLED VETERANS WILL BE ENTIRELY ERASED. IT WILL BE GONE. [APPLAUSE]
00:33:09
THEY WILL SLEEP WELL TONIGHT. ALTOGETHER, THIS ACTION WILL WIPE OUT AN AVERAGE OF $30,000 IN DEBT OWED BY MORE THAN 25,000 ELIGIBLE VETERANS WHO HAVE MADE IMMENSE...
00:33:49
I WANT TO THANK SECRETARY DEVOS FOR HER LEADERSHIP IN MAKING VETERANS DEBT FORGIVENESS A TOP PRIORITY FOR THE DEPARTMENT OF EDUCATION. BETSY, THANK YOU...
00:34:03
THERE WILL BE NO FEDERAL INCOME TAX ON THE FORGIVEN DEBT. THAT IS BIG STUFF. [APPLAUSE]
00:34:14
IT'S ALL PAST. ALL WE HAVE TO DO IS SIGN IT WHICH WE WILL DO IT THAT BEAUTIFUL DESK. OK? [APPLAUSE]
00:34:25
I'M ALSO CALLING UPON ALL 50 STATES TO IMMEDIATELY WAIVE ALL APPLICABLE STATE TAXES AS WELL. THEY WILL HOPEFULLY BE GOING AWAY VERY QUICKLY. MOST OF THE STATES HAVE ARE READY AGREED TO DO THIS. JOINING US TODAY IS ONE OF THE MANY AMERICAN HEROES WHO WILL BENEFIT FROM THIS ACTION. CATHERINE CASTLE, SHE SERVED IN THREE DIFFERENT BRANCHES OF THE ARMED FORCES. ARMY, NAVY, AIR FORCE. YOU WILL HAVE TO TELL ME WHICH IS THE BEST, PLEASE. [APPLAUSE]
....
President Trump Remarks at AMVETS Convention in Louisville, KY
President Trump delivers remarks at the American Veterans (AMVETS) National Convention in Louisville, Kentucky
....
00:32:07
I'M PROUD TO ANNOUNCE THAT I AM TAKING EXECUTIVE ACTION TO ENSURE THAT OUR WOUNDED WARRIORS ARE NOT SADDLED WITH MOUNTAINS OF STUDENT DEBT. IN A FEW MOMENTS, I WILL SIGN A MEMORANDUM DIRECTING THE DEPARTMENT OF EDUCATION TO ELIMINATE EVERY PENNY OF FEDERAL STUDENT LOAN DEBT OWED BY AMERICAN VETERANS WHO ARE COMPLETELY AND PERMANENTLY DISABLED. [APPLAUSE]
00:32:49
INCREDIBLE. NOBODY CAN COMPLAIN ABOUT THAT. NOBODY CAN COMPLAIN ABOUT THAT. THE DEBT OF THESE DISABLED VETERANS WILL BE ENTIRELY ERASED. IT WILL BE GONE. [APPLAUSE]
00:33:09
THEY WILL SLEEP WELL TONIGHT. ALTOGETHER, THIS ACTION WILL WIPE OUT AN AVERAGE OF $30,000 IN DEBT OWED BY MORE THAN 25,000 ELIGIBLE VETERANS WHO HAVE MADE IMMENSE...
00:33:49
I WANT TO THANK SECRETARY DEVOS FOR HER LEADERSHIP IN MAKING VETERANS DEBT FORGIVENESS A TOP PRIORITY FOR THE DEPARTMENT OF EDUCATION. BETSY, THANK YOU...
00:34:03
THERE WILL BE NO FEDERAL INCOME TAX ON THE FORGIVEN DEBT. THAT IS BIG STUFF. [APPLAUSE]
00:34:14
IT'S ALL PAST. ALL WE HAVE TO DO IS SIGN IT WHICH WE WILL DO IT THAT BEAUTIFUL DESK. OK? [APPLAUSE]
00:34:25
I'M ALSO CALLING UPON ALL 50 STATES TO IMMEDIATELY WAIVE ALL APPLICABLE STATE TAXES AS WELL. THEY WILL HOPEFULLY BE GOING AWAY VERY QUICKLY. MOST OF THE STATES HAVE ARE READY AGREED TO DO THIS. JOINING US TODAY IS ONE OF THE MANY AMERICAN HEROES WHO WILL BENEFIT FROM THIS ACTION. CATHERINE CASTLE, SHE SERVED IN THREE DIFFERENT BRANCHES OF THE ARMED FORCES. ARMY, NAVY, AIR FORCE. YOU WILL HAVE TO TELL ME WHICH IS THE BEST, PLEASE. [APPLAUSE]
....
Topic No. 431 Canceled Debt – Is It Taxable or Not?
If you borrow money and are legally obligated to repay a fixed or determinable amount at a future date, you have a debt. You may be personally liable for a debt or may own a property that's subject to a debt.
If your debt is forgiven or discharged for less than the full amount you owe, the debt is considered canceled in the amount that you don't have to pay. The law provides several exceptions, however, in which the amount you don't have to pay isn't canceled debt. These exceptions will be discussed later. Cancellation of a debt may occur if the creditor can't collect, or gives up on collecting, the amount you're obligated to pay. If you own property subject to a debt, cancellation of the debt also may occur because of a foreclosure, a repossession, a voluntary transfer of the property to the lender, abandonment of the property, or a mortgage modification.
In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs. The canceled debt isn't taxable, however, if the law specifically allows you to exclude it from gross income. These specific exclusions will be discussed later.
After a debt is canceled, the creditor may send you a Form 1099-C, Cancellation of Debt (PDF) showing the amount of cancellation of debt and the date of cancellation, among other things. If you received a Form 1099-C showing incorrect information, contact the creditor to make corrections. For example, if the creditor is continuing to try to collect the debt after sending you a Form 1099-C, the creditor may not have canceled the debt and, as a result, you may not have income from a canceled debt. You should verify with the creditor your specific situation. Your responsibility to report the taxable amount of canceled debt as income on your tax return for the year when the cancellation occurs doesn't change whether or not you receive a correct Form 1099-C.
In general, you must report any taxable amount of a canceled debt as ordinary income from the cancellation of debt on Form 1040, U.S. Individual Income Tax Return (PDF) (attach Form 1040, Schedule 1, Additional Income and Adjustments to Income (PDF)) or Form 1040NR, U.S. Nonresident Alien Income Tax Return (PDF) as "other income" if the debt is a nonbusiness debt, or an applicable schedule if the debt is a business debt. See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) (PDF).
....
EXCEPTIONS to Cancellation of Debt Income:
1. Amounts canceled as gifts, bequests, devises, or inheritances
2. Certain qualified student loans canceled under the loan provisions that the loans would be canceled if you work for a certain period of time in certain professions for a broad class of employers
3. Certain other education loan repayment or loan forgiveness programs to help provide health services in certain areas.
4. Amounts of canceled debt that would be deductible if you, as a cash basis taxpayer, paid it
5. A qualified purchase price reduction given by the seller of property to the buyer
6. Any Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program
7. Amounts from student loans discharged on the account of death or total and permanent disability of the student.
If you borrow money and are legally obligated to repay a fixed or determinable amount at a future date, you have a debt. You may be personally liable for a debt or may own a property that's subject to a debt.
If your debt is forgiven or discharged for less than the full amount you owe, the debt is considered canceled in the amount that you don't have to pay. The law provides several exceptions, however, in which the amount you don't have to pay isn't canceled debt. These exceptions will be discussed later. Cancellation of a debt may occur if the creditor can't collect, or gives up on collecting, the amount you're obligated to pay. If you own property subject to a debt, cancellation of the debt also may occur because of a foreclosure, a repossession, a voluntary transfer of the property to the lender, abandonment of the property, or a mortgage modification.
In general, if you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs. The canceled debt isn't taxable, however, if the law specifically allows you to exclude it from gross income. These specific exclusions will be discussed later.
After a debt is canceled, the creditor may send you a Form 1099-C, Cancellation of Debt (PDF) showing the amount of cancellation of debt and the date of cancellation, among other things. If you received a Form 1099-C showing incorrect information, contact the creditor to make corrections. For example, if the creditor is continuing to try to collect the debt after sending you a Form 1099-C, the creditor may not have canceled the debt and, as a result, you may not have income from a canceled debt. You should verify with the creditor your specific situation. Your responsibility to report the taxable amount of canceled debt as income on your tax return for the year when the cancellation occurs doesn't change whether or not you receive a correct Form 1099-C.
In general, you must report any taxable amount of a canceled debt as ordinary income from the cancellation of debt on Form 1040, U.S. Individual Income Tax Return (PDF) (attach Form 1040, Schedule 1, Additional Income and Adjustments to Income (PDF)) or Form 1040NR, U.S. Nonresident Alien Income Tax Return (PDF) as "other income" if the debt is a nonbusiness debt, or an applicable schedule if the debt is a business debt. See Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) (PDF).
....
EXCEPTIONS to Cancellation of Debt Income:
1. Amounts canceled as gifts, bequests, devises, or inheritances
2. Certain qualified student loans canceled under the loan provisions that the loans would be canceled if you work for a certain period of time in certain professions for a broad class of employers
3. Certain other education loan repayment or loan forgiveness programs to help provide health services in certain areas.
4. Amounts of canceled debt that would be deductible if you, as a cash basis taxpayer, paid it
5. A qualified purchase price reduction given by the seller of property to the buyer
6. Any Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program
7. Amounts from student loans discharged on the account of death or total and permanent disability of the student.
So there's no change from existing policy in the way the federal tax code treats the discharge of a student loan?
2 replies
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= new reply since forum marked as read
