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President Joe Biden has been working with the Department of Education to determine how student loan debt forgiveness will work.

During Biden's campaign in 2020, he expressed support for $10,000 in relief. Current reports suggest that forgiveness would apply to college-level federal student loans only (graduate school loans would not be eligible), and income limitations would be considered. Thresholds reported are $125,000 to $150,000 for single and $250,000 to $300,000 for joint filers.

If relief is provided, the big question is, what are the tax implications? Surprisingly, for federal tax purposes, none.

While typically, cancellation of debt is taxable, there are some exceptions. One of those exceptions is for student loan debt canceled between Dec. 21, 2020, and before Jan. 1, 2026, if the loan was provided expressly for postsecondary education expenses and was made or backed by the U.S.

Assuming the forgiveness only applies to federal loans, it appears to fall under this exception. This also means a 1099-C would not be issued, assuming the lender follows the provisions. There may be state tax implications, depending on whether the state conforms to the federal provisions.

We'll keep you informed as developments unfold.

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Date published May 9, 2022 | Last updated Jul 22, 2022

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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