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Student loans were canceled? Great, but you are still on the hook for taxes.

Erin Arvedlund, The Philadelphia Inquirer on

Published in Home and Consumer News

Your death actually can improve matters: Section 11031 of the Tax Cuts and Jobs Act of 2017 established an exclusion from income for discharges of federal and private student loans due to death or disability in effect from 2018 through 2025.

However, "the discharge of the (ITT) student loans is not due to death or disability. Accordingly, the new law does not apply," Kantrowitz said. "Plus, these were private loans. So the settlement merely cancels the remaining debt and clears the credit histories."

If you were an ITT Tech or other for-profit college student, contact the Pennsylvania Attorney General's office hotline: 1-800-441-2555. Or you can email scams@attorneygeneral.gov; complaint forms are available on the website at www.attorneygeneral.gov.

Tax credit as solution

Philadelphia City Councilman David Oh introduced a bill on June 20 which offers a tax credit of up to $7,500 over five years for residents with over $35,000 in student debt. Hearings take place in the fall.

His proposed legislation allows up to $1,500 in tax credits a year applied to the city wage tax. Only recent graduates with more than $35,000 in student debt would be eligible.

At $36,854, Pennsylvania has the second-highest average student loan debt per student in the nation.

Presidential hopeful Sen. Elizabeth Warren (D., Mass.) also tackled this taxable income conundrum.

 

Under her plan, Americans with student debt would not have to pay income taxes on canceled loans.

"This new type of student loan forgiveness would join the ranks of other exceptions to cancellation of debt income," wrote Adele Kilgus, a CPA with Drucker & Scaccetti, in a note to clients last month.

Warren claims debt forgiveness would be paid for by what she coined the "Ultra-Millionaire Tax," although Kilgus is dubious.

"As tax geeks, whenever we hear about new proposed legislation, we like to get to the nitty-gritty of its tax impact. Sen. Warren, as president or not, will have an uphill battle getting this bill through both houses" of Congress, she said.

(c)2019 The Philadelphia Inquirer

Visit The Philadelphia Inquirer at www.inquirer.com

Distributed by Tribune Content Agency, LLC.

 

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