I know. You are not a tax attorney. You are not my accountant. etc.
The girlfriend has been out of work since last December (13 mos ago) so her only income has been unemployment. Also last year, she filed chapter 7 to get out of all of her debts including car and house.
What will her tax liability be?
Also, I expect to have the Dept of Education give me a $17,500 student loan forgiveness this year for being a math teacher. Will I have to pay tax on it since it is from the feds? I assume so since a decade ago I had some unimproved land foreclosed upon and was taxed on the foreclosure amount (so they take the asset yet I still pay taxes?)
I think technically I am your accountant but consider these rough answers without full information.
Unemployment is taxed as ordinary income. There is a new, temporary rule that will make the first $2400 of benefits non-taxable, which will help. There isn’t enough information to know what kind of tax she’ll owe, though. A single person has a standard deduction and personal exemption of about $9000, which means she could get up to $11,400 in benefits before any of it become taxable (starting at 10%). But other income, deductions, credits, etc. might also change the equation. You’d particularly want to look at whether she had tax withheld from her unemployment benefits.
As a general rule, forgiveness of debt is taxable. However, there are some exceptions for the situation you’re describing. See Taxability of Student Loan Forgiveness - Finaid for some details.
Thanks for the link. My Loan forgiveness (if granted) was for time served in a lowincome public school so it looks like it’s exempt. Is the debt discharged under chapter 7 taxable as if it were forgiven?
but consider these rough answers without full information.