The IRS has released a list of exceptions for the inclusion of a cancelled student loan debt in income. Generally, had a taxpayer’s student loan been cancelled or repaid by someone else, the taxpayer was mandated to include the cancelled or repaid loan amount as part of their gross income, for tax purposes. However, the American Rescue Plan Act of 2021 has modified the treatment of student loan forgiveness for discharges in 2021 through 2025, wherein the taxpayer may be able to exclude the repaid or cancelled loan amount from his gross income, if the loan could be categorized as one of the following:
- A loan for post-secondary educational expenses.
- A private education loan.
- A loan from an educational organization described in Code Sec. 170(b)(1)(A)(ii).
- A loan from an organization exempt from tax under Code Sec. 501(a) to refinance a student loan.
Taxpayers can find more information about the list of exceptions to canceled student loan debt in income https://www.irs.gov/forms-pubs/modified-treatment-of-student-loan-forgiveness-for-discharges-in-2021-through-2025.