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Tax liability for forgiven state student loan?

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John Stuart

Junior Member
What is the name of your state? Washington/Alaska

I had a student loan debt from the state of Alaska. I was not able to complete my schooling and am now on disability, I receive VA disability compensation at the 100 percent rating, and Social Security disability. My condition is permanent.
During the 2004 tax period, the State of Alaska, canceled my debt in full, due to my disabilities. As I did not file a tax return for 2004, now the IRS is contacting me demanding I file a 1040 for 2004. The IRS says it is because of the canceled/forgiven Alaska student loan?
Where can I find information on if I have a tax liability for the canceled student loan? Do I have to fill out a 1040 to determine that? What about exceptions for my status, if any?

Thanks in advance for any tips anyone can provide in reply!

John
 


seniorjudge

Senior Member
The IRS says it is because of the canceled/forgiven Alaska student loan?

Correct; you got the dough, you get the tax liability.
 

LdiJ

Senior Member
What is the name of your state? Washington/Alaska

I had a student loan debt from the state of Alaska. I was not able to complete my schooling and am now on disability, I receive VA disability compensation at the 100 percent rating, and Social Security disability. My condition is permanent.
During the 2004 tax period, the State of Alaska, canceled my debt in full, due to my disabilities. As I did not file a tax return for 2004, now the IRS is contacting me demanding I file a 1040 for 2004. The IRS says it is because of the canceled/forgiven Alaska student loan?
Where can I find information on if I have a tax liability for the canceled student loan? Do I have to fill out a 1040 to determine that? What about exceptions for my status, if any?

Thanks in advance for any tips anyone can provide in reply!

John
Its possible that you may have to file the return, but may not owe any tax. Since you are permanently disabled and receiving only government disability payments you may meet the definition of insolvent, which would waive the tax on the cancelled debt.

Go see a tax professional to help you with the 2004 return. Don't try to do this one yourself. You don't need a CPA, you just need someone who works all year long and is accustomed to helping people resolve problems with the IRS.
 

John Stuart

Junior Member
Go see a tax professional to help you with the 2004 return. Don't try to do this one yourself. You don't need a CPA, you just need someone who works all year long and is accustomed to helping people resolve problems with the IRS.
OK, thanks for your advice, it is helpful. I'll get the 1040 professionally prepared.
 

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