FUEGO
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Nov 13, 2007
- Messages
- 7,746
Isn't debt forgiveness considered taxable income?
Under current tax law, yes, most forgiveness of debt is taxable income.
Some exceptions exist that spring to mind:
-Public Service Loan Forgiveness wipes out any remaining debt after 10 years, and the forgiven debt is NOT taxable income.
-Forgiveness of mortgage debt on a principal residence is currently not taxable income, but was up till a few years ago
-non-recourse loans
There are current lobbying efforts to get Congress to extend the non-recognition of debt forgiveness to the regular 25 year income based repayment debt forgiveness plan in addition to the Public Service Loan Forgiveness non-recognition currently on the books. There is certainly precedent for not recognizing forgiveness of debt (PSLF and mortgage debt). And it won't be an issue for me till 25 years after I start IBR. By that time, there will be a few sob stories of 45-50 year old starving artists and actors who can't repay their mega hundreds of thousands in student loans from obtaining that quintessential MFA from some hoity toity college. They will be facing huge five figure income tax bills, and since they are broke, they will not be able to pay them.
In any event, I would much rather pay tax on a five or six figure forgiven debt in 25 years instead of paying all that debt over the next 17 years.
But the possibility of paying tax on that forgiveness of debt is a contingency I have to consider, just pretty small in dollar terms today.